How The Burgeoning CLO ETF Sector Could Impact The Broader CLO Market

The CLO ETF market has grown to over $19 billion as of late November 2024 from $120 million in 2020, fueled in part by investor appetite for exposure to floating-rate debt in a rising interest rate environment.
CLO ETFs are likely contributing to the current spread tightening and liquidity of CLO tranches. For now, CLO ETFs are unlikely to exacerbate volatility in the case of a distressed CLO market because of the inherent decoupling between ETF investor share sales and CLO sales from the ETF's portfolio.
If the CLO ETF market continues to grow at its current pace, it is possible that ETFs could increase CLO note price volatility in the case of a severe market dislocation.

CLO ETF AUM over time

The AUM figures cited in this chart and elsewhere in the article will differ slightly from those reported by the CLO ETFs themselves. This is because we source our CLO ETF portfolio valuation data from Bloomberg. *Quarterly average. AUM--Assets under management.
CLO--Collateralized loan obligation. ETF--Exchange-traded fund.
Source: Bloomberg, U.S. Federal Reserve, and S&P Global Ratings.