Collateralized Loan Obligation (CLO) ETFs are funds that invest in pools of CLO securities, which are themselves backed by diversified portfolios of senior secured loans made to corporations. These ETFs, BAAA, typically focus on the highest-rated (AAA) tranches of CLOs, aiming to provide:
High monthly income: BAAA, for example, distributes income monthly and is designed to offer yields higher than traditional fixed income funds.
Capital preservation: By investing primarily in AAA-rated CLO tranches, these ETFs target the most secure segment of the CLO market.
Floating rate exposure: CLOs often have floating rates, which can help protect against rising interest rates.
BAAA has an indicated yield of 5.14% and is up 0.53% in one month. It is very new, but has $73M in assets.
ZST, meanwhile, s designed to provide exposure to a diversified portfolio of short-term, investment-grade corporate bonds, with maturities typically under one year. Key characteristics include: short terms, stable income, high credit quality and good income. ZST yield is 2.94%, assets $5B, one-year return 4.17%, one month 0.19%. The average duration of its holdings is six months.
Because of the short term nature of ZST, and its much better liquidity, both in terms of its size and its tradeable holdings, it is safer than BAAA. But this, of course, is also reflected in their respective yields. We would be comfortable with BAAA if an investor fully understands the differences. We would of course prefer to see a longer history to gauge performance in different types of markets.