Alternative credit expert Reckoner Capital Management on July 9 introduced the Reckoner Leveraged AAA CLO ETF (NYSE:RAAA), the industry’s first ETF providing leveraged exposure to AAA-rated collateralized loan obligations (CLOs).
The fund seeks to provide increased yields by matching high-quality CLO assets with moderate leverage, making it a differentiated competitor in the fast-changing CLO ETF space.
“While the CLO ETF market has grown significantly as institutional and retail investors seek alternative credit investment opportunities that offer diversification, attractive yields, low default risk, and inflation protection, there is still limited differentiation among AAA CLO ETFs,” said Reckoner CEO John Kim. The fund’s distinguishing factor is its capacity to access elite CLO managers and employ modest leverage to enhance returns while prioritizing capital preservation.
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AAA CLO ETF Explained
A collateralized loan obligation (CLO) is a portfolio of corporate loans—usually from below-investment-grade corporations—pooled together. They’re then carved up into various “tranches” of risk. The AAA tranche is the most senior and lowest-risk. In other words, it’s the first to be paid and the last to incur losses.
An AAA CLO ETF provides investors with exposure to these highest-quality slices, merging:
- Greater yields than regular investment-grade bonds
- Floating interest rates, hedging against inflation and rate increases
- Low default risk due to the AAA credit ranking
- Diversification, as CLOs are secured by dozens or even scores of corporate loans
Institutional investors once held CLOs alone. ETFs have now made it possible for individual investors to gain access to these high-yielding instruments, which offer built-in liquidity and transparency.
Strategy In Focus
The RAAA ETF invests almost exclusively in AAA-rated, floating-rate CLO bonds, carefully selected based on a data-intensive screening process that considers CLO managers on the basis of performance, risk tolerance, and track record. These bonds occupy the highest position in the CLO capital structure, providing increased protection against defaults.
To build bigger returns, Reckoner uses up to 50% leverage through short-term reverse repurchase agreements, a step it states will be turned up or down as market conditions dictate. The fund is actively managed and calibrated to be sensitive to credit and macroeconomic risks, calling on Reckoner’s over $16 billion of experience managing alternative credit assets.
Other CLO ETFs Available
The CLO ETF universe remains relatively specialized but expanding. The market leaders are:
- Janus Henderson AAA CLO ETF (NYSE:JAAA) – Among the largest and earliest in the category, with an emphasis on low-duration, investment-grade CLO exposure.
- Aptus Collared Income Opportunity ETF (BATS:ACIO) – A more sophisticated approach merging CLOs with equity income strategies.
- Blackstone Senior Loan ETF (NYSE:SRLN) – Though not strictly a CLO-only fund, it provides exposure to leveraged loans and credit products.
- VanEck CLO ETF (NYSE:CLOI) – Offers a more diversified mix of tranches of CLOs, some of which are below AAA, for a more diversified credit bet.
With RAAA’s launch, Reckoner is creating a new subgenre: senior CLO tranche leveraged exposure, designed to appeal to investors who wish to increase yield without stepping into riskier credit.
The launch of RAAA marks a significant milestone in the evolution of CLO investing through ETFs. By providing floating-rate income, active risk management, and selective leverage, Reckoner is targeting today’s yield-hungry yet risk-averse investors with a “smartly spiced” form of a conservative asset class.
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