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The Power of CLOs: Higher Yields and Built-In Risk Protection

March 03, 2023

Read Time 1 MIN

Are CLOs part of your core income portfolio? This white paper explores how CLOs are structured and why we believe they are compelling in the current environment.

Given their higher relative yields, “built-in” risk protection and historical outperformance in periods of rising rates, now is a good time to better understand collateralized loan obligations (CLOs), how they’re structured and how they fit within a fixed income portfolio.

CLOs are securitized, actively managed portfolios of leveraged loans. They have historically offered a compelling combination of both an attractive yield and strong risk profiles. The strong historical performance of the asset class is a testament to the built-in risk protections resulting from how CLOs are structured. In addition, CLOs are floating rate instruments, which means their coupons reset each quarter along with prevailing interest rates, resulting in low price sensitivity to changes in interest rates. This has led to CLOs historically outperforming in periods of rising rates, like the environment we are in today.

Topics in this white paper include:

  • The structure of CLOs, including their built-in risk protection
  • Historical track record relative to other corporate debt categories
  • What makes CLOs even more compelling in the current environment
  • An analysis of how CLOs fit into a broader fixed income portfolio
  • The importance of an actively managed approach


Please note that VanEck may offer investments products that invest in the asset class(es) or industries included herein.

This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities/financial instruments mentioned herein. The information herein represents the opinion of the author(s), but not necessarily those of VanEck, and these opinions may change at any time. Non-VanEck proprietary information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Not intended to be a forecast of future events, a guarantee of future results or investment advice. Historical performance is not indicative of future results. Current data may differ from data quoted. Any graphs shown herein are for illustrative purposes only.

An investment in a Collateralized Loan Obligation (CLO) may be subject to risks which include, among others, debt securities, LIBOR Replacement, foreign currency, foreign securities, investment focus, newly-issued securities, extended settlement, management, derivatives, cash transactions, market, operational, trading issues, and non-diversified risks. CLOs may also be subject to liquidity, interest rate, floating rate obligations, credit, call, extension, high yield securities, income, valuation, privately-issued securities, covenant lite loans, default of the underlying asset and CLO manager risks, all of which may adversely affect the value of the investment.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.

© Van Eck Securities Corporation, Distributor, a wholly owned subsidiary of Van Eck Associates Corporation.

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