April 11, 2024 - At over $1 trillion in size, CLOs are the largest source of demand for the $1.4 trillion US institutional loan market and CLO bonds have been a preferred investment for institutional investors. And while they remain the dominant force in CLOs, retail has gained a foothold in the form of exchange-traded funds (ETFs). Since the first CLO ETF was launched in September 2020, the space has grown to 10 funds and $8.9B in assets-under-management (AUM), per LSEG Lipper. While a few of these will invest in lower rated CLO debt, most are focused on CLO AAA rated bonds. Growth in the space increased when the Fed started raising interest rates in March 2022, in contrast to outflows from loan mutual funds and ETFs. Over the last six months, AUM in the CLO ETF space jumped 86% including 40% in 1Q24, with Janus Henderson AAA CLO ETF eclipsing the size of Invesco’s Senior Loan ETF – the largest loan ETF in the market. The outlook for the rest of the year is for more growth. On the supply side, CLO new issue had the busiest first quarter since the Global Financial Crisis, and with sticky inflation readings and a higher for longer interest rate environment, floating rate CLO AAA bonds remain attractive.