The London Stock Exchange today welcomes Invesco to help celebrate its launch of the first European-domiciled ETF that provides diversified exposure to USD AAA Collateralised Loan Obligations (“CLOs”).

This and the EUR version of the ETF are intended for professional investors only and aim to provide consistent income and capital preservation over the long term by investing primarily in the AAA-rated tranches of floating-rate debt securities issued by CLOs. The AAA tranche of CLOs offers both an uplift in spread relative to other similarly highly rated instruments, and an attractive risk profile with no historical defaults. Their floating rate nature means they exhibit low correlation with many other fixed income asset classes, making them particularly interesting to professional investors looking to diversify their portfolios.

Gary Buxton, Head of ETFs and Indexed Strategies for EMEA and APAC at Invesco, said: “The CLO market has grown rapidly, with outstanding issuance nearly doubling in the past five years to US$1.3 trillion globally. We’re excited about this launch and believe professional investors will find the active expertise of Invesco’s global private credit team together with our highly efficient European ETF platform to be quite a compelling combination for gaining exposure to this asset class.”

Michael Craig, Head of European Senior Loans at Invesco Private Credit, explained: “How you gain access to CLOs is crucial, and having an experienced manager making the investment decisions can make all the difference. With over 25 years of experience as both an investor and issuer of CLOs, we know that the quality of the CLO manager is key to performance through market cycles. While we aim to deliver index-like performance with these ETFs, we’re not constrained and, instead, actively select each security we invest in based on its merit.”

Stephanie Butcher, Co-Head of Investment at Invesco, said: “One of our biggest attractions for professional investors is the breadth of our investment capabilities and depth of our specialist teams, be that in terms of asset classes or investment vehicles. We can also combine them in ways that further benefit investors. For instance, we have been combining our expertise in Private Credit and ETF construction successfully for 15 years in the US, and we expect the launch of this type of actively managed ETF to drive growth in Europe.”

About Collateralised Loan Obligations

A CLO is a special purpose vehicle that issues debt securities that are collateralised by a pool of primarily the senior secured loans of corporations. The CLO issues securities in different classes (or “tranches”) for investors of different risk tolerances.

Distributions from the CLO’s pool of assets are paid out based on seniority, with the highest-rated AAA tranche paid first, then continuing down to the lowest-rated tranche and finally to any equity holders. This “cashflow waterfall” feature means the highest-rated AAA tranches are the most protected and is the reason that no AAA-rated CLO in either USD or EUR has ever defaulted.

Investment risks

The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested.

Highly rated tranches of CLO Debt Securities may be downgraded, and in stressed market environments even highly rated tranches of CLO Debt Securities may experience losses due to defaults in the underlying loan collateral, the disappearance of the subordinated/equity tranches, market anticipation of defaults, as well as negative market sentiment with respect to CLO securities as an asset class.

Important information

All data is from Invesco as at 31 January 2025 unless otherwise stated. Views and opinions are based on current market conditions and are subject to change.

This is marketing material and not financial advice. It is not intended as a recommendation to buy or sell any particular asset class, security or strategy. Regulatory requirements that require impartiality of investment/investment strategy recommendations are therefore not applicable nor are any prohibitions to trade before publication.

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