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CLO ETFs seen as next frontier as rate uncertainty keeps fixed income in demand

VettaFi's Todd Rosenbluth says collateralized loan obligation ETFs could be the next big push in the industry as investors await Fed clarity and seek yield without long-term maturity risk.

AI News Feed · 2026-08-14 20:49

"CLOs have been popular within the marketplace," Rosenbluth told CNBC's "ETF Edge" this week. CLOs are short-term fixed income strategies made up of pools of floating-rate secured loans, designed to deliver relative stability and attractive yields across market cycles.

"We've seen fixed income ETF demand be quite strong," he said. "I think that's going to continue as we're still waiting for some clarity from the next move of the Fed." He pointed to last month's decision by the Federal Reserve to leave rates unchanged as a catalyst for short-term product demand.

The industry appears to be responding to that investor interest. Rosenbluth noted that Reckoner Capital Management, an ETF provider specializing in CLOs, has been actively creating new CLO ETFs this year. "That's caught our attention," he said. "It's just great to see the innovation that's happening within the fixed income ETF marketplace."

Jennifer Grancio, global head of distribution at TCW Group, also sees fixed income demand from advisors. "I think a lot of advisors are holding a core income-oriented portfolio and then dabbling a little bit with short duration or CLO products," she said.

Rosenbluth acknowledged risks tied to CLO ETFs. In a note to CNBC, he wrote that while AAA-rated CLO tranches boast near-zero default rates, lower-tier tranches rated BBB to B face heightened default risk and market volatility during economic stress. He added that because corporate loans in CLO pools carry significant exposure to tech and software sectors, private credit jitters or tech selloffs can spill over and trigger spread widening.

As a result, he said investors are seeking AAA-rated and senior-secured assets to capture attractive yields without the long-term maturity risk.