Collateralized Loan Obligations

Collateralized Loan
Obligations: A Compelling
Asset Class for
Institutional Investors

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Angela Best Kevin Quirk, CFA
JUN 24, 2022

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Investment Thesis

Investors looking for higher yield in an investment grade portfolio may find a compelling opportunity in Collateralized Loan Obligations (“CLOs”). The global CLO market has experienced tremendous growth in recent years, surpassing $1 trillion,1 making it an asset class that should no longer be overlooked. With spreads driven by corporate leveraged loan fundamentals, call optionality, manager tiering, and relative value to other structured products and corporate sectors, the addition of CLOs may provide portfolio diversification through the following characteristics:

  • Most tranches have investment grade ratings
  • Historically low correlation to moves in interest rates through floating rates
  • Exposure to the leveraged loan market
  • Attractive income profiles
  • Structural features designed to help protect against loss during times of stress

As a participant in the Structured Products sector for more than 20 years, MetLife Investment Management (MIM) believes that a compelling case can be made for investing in CLOs, a sizeable and growing part of the securitization market. We believe this is a unique asset class which Institutional Investors should explore and evaluate its characteristics, performance, and investment merits.