CLOI
VanEck ETF Trust - VanEck CLO ETF
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If you are interested in private debt (or credit), consider a CLO ETF suck as CLOA, CLOI, JAAA. For better returns but more risk, JBBB or similar. I am a long term CLO investor and pleased with the risk/returns, but it may not be for everyone.
>Also reasonable but I think your risk estimate is overly high. Of all the junk bonds issues in a year (mainly from JBBB) only 4% actually go into default. Just to clarify, JBBB does not invest in junk bonds. These CLO tranches differ fundamentally from junk bonds in both structure and risk profile. There have been **no defaults** in the BBB and BB tranches since the GFC and the total cumulative default rate since the early 90s is just 0.28% for BBB and 0.88% for BB tranches. In contrast, junk bonds are unsecured corporate debt with higher default rates, historically averaging 4% annually and significantly lower recovery values. The biggest risk with these is not credit risk but liquidity risk. Unlike junk bonds, the CLO BBB tranches trade over-the-counter in a relatively illiquid secondary market. In a major financial crisis, the market can seize up, causing the NAV to drop sharply. However, if you can hold out, you will continue to get your distributions and they will eventually recover. >Also some funds only invest in senior loan obligations. So if a company goes bankrupt the senior loans would have priority to be payed off by the assets the company has left. So again you are not going to loose all your money. So the risk from CLOA and CLOI might be lower than your think Also having 3 high yield funds reduces the risk even more. This isn't entirely accurate but you are correct that the risk from CLOA and CLOI is probably lower than he thinks.
Reasonable goal so 100K in money market fund or several bond funds. >The remaining 140K will be in fixed income assets, of which 40K (JBBB,CLOZ, CLOI) will pay the highest rate but could default and I could theoretically permanently lose that 40K Also reasonable but I think your risk estimate is overly high. Of all the junk bonds issues in a year (mainly from JBBB) only 4% actually go into default. A good fund manager would know this and would either avoid companes in poor financial condition or have or have bonds from 100 or more companies so that a 4% default rate would mean only 96% of the bonds would pay out as expected. So the loss of 40K is highly unlikely. Worst case the dividend might be reduced slightly in a bad year. Also some funds only invest in senior loan obligations. So if a company goes bankrupt the senior loans would have priority to be payed off by the assets the company has less. So again you are not going to loose all your money. So the risk from CLOA and CLOI might be lower than your think Also having 3 high yield funds reduces the risk significantly. Index funds are good thing to have in a bad economy since they can be sold for cash. But Keep in mind the in a bear market you hav sequence of return risks which can be significant. What I have been doing is a money market for for Cash A mix of high yield stock dividend funds and loan obligations with a goal of about 10 separate funds. With an overall yield of about 8% with enough income from these funds that they would cover my my living expenses if needed. Then Stock index funds for a long term asset I can sell.if needed. So in my case I have a lot more money in high yield funds since I want enough income to cover living expenses. With a smaller ammount in cash and index funds.
Forgot to mention that I plan to gradually move the JBBB, CLOZ, and CLOI (40K total) into VOO. That's the "play" money. For now, I want to keep them somewhere with better yields than SGOV. I know you're not supposed to time the market but I want to have that 40K in hand in case the market tanks later this year due to tariffs, inflation, job losses, or Elon Musk sniffing a bad batch of ketamine. It's fine if I'm wrong and miss out on larger gains. Personally I'd rather risk having smaller gains if it means having a chance to buy at a big discount. Basically, 100K will remain in what I assume are reasonably safe options: SGOV, FLOT, and JAAA. I have both FLOT and JAAA in the mix because they are built differently and presumably would behave differently under a stress. A further "diversification", if you will. The other 40K in cash, which I would not need to withdraw immediately and could wait longer for their prices to bounce back, would remain in these higher-yield places and eventually invested into VOO when there is a dip or bear. TLDR: If I wasn't so greedy I'd just store the "need ASAP" money into SGOV and the rest into stock ETFs, but I *want* to time the market and I want to keep the standby cash into a higher yield place the risk of which is reasonably managed.
I would put the 100k in SGOV (because that's your key amount). The rest you can just go 50% JAAA and 50% CLOI. I wouldn't personally go with your choices here. I have a similar need in one of my accounts so what I did was I put the needed money in short duration treasuries and the rest went to more complicated income etfs like SPYI.
Some prominent examples include the Panagram BBB-B CLO ETF (CLOZ), the VanEck CLO ETF (CLOI), and the BlackRock AAA CLO ETF (CLOA). Other options include the PGIM AAA CLO ETF (PAAA), the Invesco AAA CLO Floating Rate Note ETF (ICLO) and the AXS First Priority CLO Bond ETF (AAA).
Take a look at some of the AAA rated CLO funds like CLOA, CLOI, or PAAA or JAAA, etc.. those are paying out around 5.5% - 6% APY currently. or if you have the appetite, check out the BBB rated ones for even higher returns. (7% - 9%)
Depends on your risk tolerance. No risk tolerance, go CLOI. Some risk tolerance, go XYLD, XDTE QYLD QDTE. And onward it goes to more risk more reward.
As a retired new age hipster, I hold quite a bit of the CLO’s including CLOI besides the ones you mentioned. During 2022, the S & P was down over 18%. JAAA with total returns was slightly above water.
Should have went with CLOI to balance it out
OXLC and ECC are CEFs that use leverage on top of CLOs. There are now CLO ETFs, which may not be mentioned in income factory. JAAA, JBBB, CLOI and CLOZ. Without the leverage the pure CLO ETFs are less volatile than the CEFs and also Senior loan ETFs like BKLN and SRLN,