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- [00:00]
Michael Batnik
Today's Animal Spirits Talk youk Book is brought to you by vaneck. Go to vaneck.com to learn more about their Vaneck C L O E T F that's Ticker C L o I. It's vaneck.com to learn more.
- [00:11]
Ben Carlson
Welcome to Animal Spirits, a show about markets, life and investing. Join Michael Batnik and Ben Carlson as they talk about what they're reading, writing and watching. All opinions expressed by Michael and Ben are solely their own opinion and do not reflect the opinion of Ritholtz Wealth Management. This podcast is for informational purposes only and should not be relied upon for any investment decision decisions. Clients of Ritholtz Wealth Management may maintain positions in the securities discussed in this podcast.
- [00:41]
Michael Batnik
Welcome to Animal Spurts with Michael and Ben. On today's show, we are talking about collateralized loan obligations. Wait, isn't that what almost took down the financial system in 2008? No, not exactly. Those were collateralized debt obligations. Some of them might have been inside CLO's been. I don't know. It's been a long time. I don't. I haven't read too big to fail in 20 years.
- [01:00]
I read a lot of very long magazine pieces about this stuff back then because there weren't really blogs and stuff to get into this. But yeah, I think anything with the word collateralized in it probably has people feeling a little nervous.
- [01:11]
Thank you for not checking my math there.
- [01:13]
Okay, a little bit off. So we talked to Fran and Bill from Vaneck today who work for their fixed income ETF portfolio management team. We talked about cloi, which is a collateralized loan obligation etf, which is obviously making way in the headspace of, of investors because this thing went from zero to a billion in like the last three years, I guess.
- [01:34]
Unbelievable. So it's, it's essentially it's a basket of loans that invests in a basket of loans.
- [01:40]
Yes, baskets all the way down and there's higher. Hearing about the products is interesting. It just made me think how many different way you think of fixed income as like this really boring asset class to invest in. Oh, you just buy government bonds and that's it. And now there's so many other ways to invest. And I think the fact that we've had so much extreme volatility in bonds over these in this decade has made people try to rethink, wait, maybe I need a little bit of this or some of that and try to hedge different environments.
- [02:09]
Well, guess what the appeal to this is. It's actually not fixed income.
- [02:12]
Right oh, because it's floating rate.
- [02:14]
Right, Right.
- [02:15]
So yeah, when rates go up and inflation goes up this thing, the rates adjust and you don't have the interest.
- [02:20]
Rate because fixed income investors got destroyed in 2022 and investors that were exposed to floating rate, that is more credit risk, which actually weirdly held up in 2022 made it out just fine.
- [02:31]
Yes. But I do think there is something to the fact that fixed income investors have woken up to the fact that I need to be way more thoughtful about this allocation and maybe have different pieces of my allocation that account for deflation and disinflation and then inflation and then financial crises and all these different things that can impact different aspects of the fixed income market in different ways.
- [02:52]
This is a good conversation with, with Fran and Bill. It is a highly complex subject and so this is not the type of thing that loans itself to just one conversation. So for advisors listening and want to learn more, there is more to be found@vanak.com so with no further ado, here is our conversation with Fran Rodolasso. Fran is the head of Fixed Income ETF Portfolio management and Vaneck and Bill Sokol. Bill is the VP of and director of Product Management. Guys, welcome to the show.
- [03:24]
Fran Rodolasso
Thanks for having us.
- [03:25]
Ben Carlson
Thanks. Great to be on today.
- [03:26]
Michael Batnik
Before we get into the conversation about Cloy, the ETF that we're going to be talking about. Collateralized loan obligation. Not exactly a corporate bond or a treasury bond. I'm assuming a lot of people that are listening to this might not have been around back in 2008 when these buzzwords were there for wrong reason. What is a collateralized loan obligation?
- [03:52]
Fran Rodolasso
So a CLO or a collateralized loan obligation, it's a, it's a securitized portfolio of leveraged loans. These are often referred to as bank loans or syndicated loans. And these are loans made to, you know, cash flow generating companies. The loans are secured by assets of these borrowers and they rank senior to other debt of these companies. So senior to things like high yield bonds. And historically they've had lower levels of losses as a result of that seniority. A CLO typically holds 150 to 300 of these individual loans. And like any securitization, what happens is that the CLO will issue debt in order to fund the purchase of those loans. So the investors in that debt earn the interest that is being generated by the underlying loans. So interest and principal actually is paid to the debt investors. But this isn't, this isn't paid pro rata, it's paid Sequentially. So you have different levels of subordination. You have different tranches, you have with different credit ratings that reflect the seniority. So you have a triple A tranche that's going to be paid first, paid interest first, and it's the most insulated from losses in the portfolio. You have an equity tranche which absorbs any default losses first before any of the other debt holders and it receives all the excess cash flows after interest payments are made to the debt holders. And between the AAA and the equity, you have double A down to double B typically. And this structure does allow for different levels of risk and return. And they, I should also note, they pay floating rates of interest. So that reflects the same floating rate nature of the underlying loans. So you're going to get SOFR plus a fixed spread and the spread is going to reflect the level of risk you're taking.
- [05:54]
Michael Batnik
What is the reason for the floating rates? Why is it floating?
- [05:57]
Fran Rodolasso
Well, leverage loans are floating rate. It's the nature of the asset class. Typically it's because these are made or historically these have been made by banks and banks like holding floating rate assets. And you want to match the assets of the clo, which in this case is the loans with the liabilities, which is the CLO debt. So you don't have a mismatch.
- [06:24]
Michael Batnik
All right, so pretty straightforward. No, I'm just kidding. That was a lot. We're gonna unpack this over the next 30 minutes. So. All right, these are like loans of loans with different tranches. Fran, help. What exactly are we looking at here?
- [06:38]
Ben Carlson
Think of a CLO as a fund and that fund has an equity investor. Sometimes it's the fund manager, sometimes it's outside parties. That represents about 10% of the capitalization of that fund. 90% of the capitalization of that fund comes through the issuance of debt. Those are CLO tranches. They range from AAA typically down to double B. So there's sort of one in each major ratings category. So from an end investor point of view, you can lend money to this closure by choosing the level of risk you want to take. You could lend money at the AAA level, which has a super high degree of subordination underneath it, which receives the of the first cash flows that accrue to that clo. As I said, a CLO is like a fund. What's being held by that fund are, as Bill said, broadly syndicated loans or bank loans, which are typically sub investment grade. But it's a large diversified portfolio of loans. And that is where a lot of the protection comes in for investors. That and the subordination of the lower rated debt tranches and of course equity to the higher rated debt tranches.
- [07:54]
Michael Batnik
So in 2022 when we had the bond bear market, it wasn't really a credit event, it was an interest rate risk event. Right. So my guess is because of the floating rate nature of these clos manage that period pretty good then.
- [08:08]
Fran Rodolasso
Yeah. So the floating rate nature certainly helped in 2022, 2023, it continues the rate volatility we've seen and it's the floating rate nature. But also, as I'm sure we'll discuss, you get a spread pickup as well, a very attractive spread over the floating rate. And that also helped with returns.
- [08:29]
Michael Batnik
So you guys timed the launch very well. It was June 2022. As Ben mentioned, we were in a really nasty bond bear market, but that was primarily in Treasuries of all things and investment grade bonds. So from 2022 to today, almost a billion dollars in assets has entered. In fact, it was over a billion at one point. But so obviously there is a massive amount of demand for something like this. Why do you think investors are starving for this sort of investment?
- [08:59]
Ben Carlson
A couple of reasons. One is they're looking at the returns that they've delivered through bouts of rate volatility. But number two, when you look at even longer term risk and return charts, CLOs have really high sharpe ratios. They have better returns than investment grade credit with lower volatility. Even the lower rates tranches have higher returns than us high yield corporates with the low interest rate or zero interest rate duration. They're not correlated to say your AG or other core fixed income instruments. So there's this diversification benefit as well. So it's a combination risk return diversification.
- [09:45]
Michael Batnik
Is one of the downsides. Then if we have a disinflationary environment or a deflationary environment and other bonds get a little boost because of yields falling. Is that where CLOs struggle? What's the, what's the downside for these assets?
- [09:57]
Fran Rodolasso
The coupon will go down if the Fed starts cutting rates. That's just the nature of floating rate. But the price, there's no price impact. So it's not really a downside. You're not going to see rate sensitivity from a price perspective. Really. These are credit instruments. So the main risk here is that you have a credit event that spreads widen out and you're going to see that reflected in the price, that the value of the clos, they're much more sensitive, especially as you go down the capital structure, they're much more sensitive to credit.
- [10:29]
Michael Batnik
So I want to talk about the packaging of this product because there's been an extraordinary disamount. That's not a word. There's been no volatility. If you're looking at the price return of this thing, it is up and to the right. The max drawdown is like 3%. So talk to us about the mismatch between like the liquidity that you get in the ETF wrapper versus the underlying portfolio of loans within each loan that's in this portfolio, like so. And then I guess in the event that there is a credit event in the economy, would we, would we see this thing, you know, gap down 15% or how would, how would the price discovery work? And forgive me for the long rambling.
- [11:11]
Ben Carlson
Question, a few things, maybe we'll start at the end of that question. How much CLO prices? Remember, these are debt instruments that are collateralized by those loans. These actually trade more like bonds. They're normal settle T plus one settle. There's not necessarily a lot of electronic trading. It's a lot of end investor to end investor via trade lists like Bid Wanted and Competition or Offer Wanted and Competition lists. But they also trace their transparent. So the CLO tranches that are issued by these structures have a very different dynamic in terms of the liquidity. Although leveraged loans also trade pretty regularly and are quoted, they just have longer settlement cycles. So particularly in the triple A and AA tranches, even down to the single A, there is a lot of liquidity, meaning you can see quarter point bid ask spreads through bouts of volatility. There are typically buyers because there are, there are bank treasuries, there are corporate treasuries, there are insurance companies. Japanese banks are a well known user of particularly the AAA tranches. Same goes with a lot of those institutions. For AA tranches. It's as you go further down to say the triple B and double B tranches where Michael, to your question, where you might see those 15% drawdowns, that's possible and that has happened. And that's where a lot BBB clos by the way, very few of them have ever defaulted historically like a very, very small number. So the structures have held up but the price volatility in response to shifts in the credit market is there. And that further down the cap stack is where you see that type of price volatility in terms of the ETF's performance. Maybe Bill, I'll let you speak further to that, but I'll start by saying we haven't seen that much even spread volatility over the last several years, even since this was launched or the other CLO ETFs that are out there. And Bill, maybe you want to talk a little bit more how this ETF would respond to that.
- [13:33]
Fran Rodolasso
Well, I guess I would just say to Fran's point, the last three years we haven't, we've only seen really tightening spreads with a few blips here and there, including very recently. But the, of course you don't have the rate sensitivity and that's going to be, I mean that's usually your biggest driver of returns in fixed rate core bonds. So you don't have that, you have the credit sensitivity, which we haven't seen a lot of lately. But, but it is why we do think when you are investing in Clos, you need to have the right strategy. You want to invest broadly across the capital structure. You given that you will have lower liquidity and higher volatility. Volatility as you move outside of AAA's, you want to have the ability to stay nimble, to manage risk, but also to find the best opportunities. And we think, we think, you know, being very active in your approach and having flexibility that doesn't just look at the rating is the right way to manage those risks.
- [14:38]
Ben Carlson
We had an example just several months after we launched the etf there was this sort of LDI crisis with the UK pension funds and they needed to raise liquidity. They were decent sized holders of the higher rated CLO tranches. That's what they sold. They sold aaa, even some AA Clos, not because they were forced sellers, it's because that's where they could get the liquidity. That was a pretty good example. Clos did get a lot of attention at that point in time because that's what those funds are selling. But the price volatility did not show up in those higher rated tranches. There were plenty of buyers at that point in time.
- [15:27]
Michael Batnik
You mentioned the spreads. People have been worried for I guess a couple months now that we're seeing a slowdown in the economy. The stock market is rolling over. People are becoming worried again. And one of the things people in the finance world keep pointing to is, well, spreads are still pretty darn tight and they haven't blown out yet. Does this surprise you at all? And I guess my follow up would be is the bond market going to be pressing enough to see a slowdown coming and then spreads will blow out or do spreads blow out after the fact that you already see the Slowdown is here.
- [15:58]
Ben Carlson
First of all, you're talking to someone who's been in the bond and credit markets for 30 years. So I'm always thinking spreads are too tight. So that's just the nature of being a bond market pessimist. I should have started in equities, would have changed everything. But yeah, when you look at fundamentals, do a backward looking view on spreads, you could justify them. The question for us has been looking forward are potential paths for the market, for the economy, for corporate balance sheets, are the various risks priced in enough? I think a lot of people agree there's not a lot of room for error in credit spreads. But on the other hand you've got base rates that are pretty high levels. You could look at over 5% yield on investment grade corporates, over 7% yield on even high yield fixed rate corporate bonds. CLOs which are much higher in credit quality overall coupons are still over 6%. The weighted average yield to worst is still close to 6%. These are still attractive all in yields with a lot of carry that could cushion against wider spreads. Not a 500 basis point blowout in spreads that might come with a surprisingly deep and rapid recession. So we expect that there will be more spread volatility and more rate volatility. We think CLOs are a way of actually going up in quality for people with high yield or levered loan allocations. Now to help weather some of that.
- [17:40]
Michael Batnik
So as investors talk to you about some of the opportunities, risks in the fund and they go to your faction like oh okay, let me just take a look at what's under the hood. And they look at the top 10 holdings, they say, well okay, Neuberger Berman Loan Advisor CLO. And they, Fred, I see you laughing because it's a bunch of silos in here. So what exactly are investors getting exposure to when you know, you really look under the hood?
- [18:07]
Fran Rodolasso
Well, with each CLO in the, in the ETF portfolio underlying that are typically hundreds of individual leveraged loans. So they're getting, ultimately they're getting the payments from those loans but with the protection that the CLO structure provides, they're also getting the expertise of the CLO manager. So you mentioned Neuberger Berman. So Neuberger Berman is actively managing that portfolio of that clo. And in our ETF they're getting the credit selection of our sub advisor, which is Pinebridge Investments, to look through, you know, look into the loan portfolio, assess the manager, assess the terms of the CLO to, to make sure there's value.
- [18:53]
Michael Batnik
In holding that deal you mentioned, the, the structure of the clo. So this is senior to everything else. So in the event of distress or a bankruptcy, this is the slice that gets paid first.
- [19:08]
Fran Rodolasso
Yeah. So there's multiple layers of subordination. There's the underlying loans, which are senior to bonds. So you, so you do have senior secured exposure in the underlying loans. Those are securitized. And what we hold is a, is the CLO debt. So in addition to the underlying strength of the collateral, you have the subordination that's built into the structure of the clo. So if you're buying a AAA or a double A, for example, you have the subordination of all the tranches underneath you as well as the first loss equity tranche.
- [19:44]
Michael Batnik
In the event of a real recession, what, what would you expect losses to look like? And now like, but also like, drawdowns can be divorced from actual losses? No, like investors could overreact in a.
- [19:55]
Fran Rodolasso
Recession or a big credit event. We would expect to see, you know, spread widening and some level of drawdown. And what that level is will depend on the severity of spread widening. We don't expect to see defaults in CLOI, which is our investment grade CLOs, investment grade tranches. Just from a mathematical perspective, when you look at the amount of subordination even below triple B, it's very difficult to have enough defaults in a loan portfolio where you're going to see impairment of even the triple B. And when I say very difficult, we're talking multiples of the historical average of leverage, leverage loan defaults. And you need to see that over typically five to seven years. So it's just something that doesn't happen. So default risk is not the primary risk when you're investing in investment grade clos. It's spread risk. It's the mark to market that you might experience in when spreads widen.
- [21:02]
Michael Batnik
All right, so I don't want to put words in your mouth, but I feel like that particular risk of spreads widening, that happens in a recession, of course.
- [21:11]
Fran Rodolasso
No, that is your primary risk.
- [21:13]
Ben Carlson
The depth of losses will vary up and down the cap stack. Right. So the high yield tranche of double Bs maybe start trading down into the mid to low 80s in terms of cents on the dollar. You know, the higher rated AAA down the single A, you know, you might see 5% drawdowns, maybe, maybe more in an extreme scenario. But Michael, you already made the point. Yeah, those permanent losses which would come from the CLO tranches themselves defaulting, there's a historical record going back 30 years. So these existed during the global financial crisis. In fact, they've existed since the early or mid-90s. The structures were actually less robust than they are today in terms of having a little lower levels of subordination, not quite as strict on the diversification mandates to get the ratings. There was virtually no tranches that suffered permanent losses in the five year like 2008-2013. We have a chart in one of our books of losses meaning default losses among CLO tranches. And it's basically a flat line at zero. Yes, a handful of double B tranches and a very, very small handful of triple B tranches did default. But those were like on a market basis it was negligible permanent loss. But the volatility can be high. These correlate with the loan market and the high yield market. They don't correlate with the treasury market.
- [22:51]
Michael Batnik
This is a good transition into your investment process. So I'm curious, do you have a specific part of the CLO market that you focus on? Do you only invest in high quality bonds? Do you have credit standards? Or is it more due to the environment that you pick what is looking the best because of the spreads or because of the economy? Do you have a specific area you focus on?
- [23:10]
Fran Rodolasso
Well, we have two ETFs. One focuses just on investment grade, so triple A to triple B CLO tranches. The other invests in lower rated mezzanine, so which is basically everything below aaa. So it's going to give you a higher yield with more volatility. Of course in, in the event that you do see a, you know, recessionary environment. But how those CLOs are selected, it's actually by, by Pine Bridge Investments. So they're the sub Advisor on the ETFs. We, they have decades of experience in this market. They've managed similar strategies for their institutional clients. As far as the process, Fran, do you want to walk through that?
- [23:54]
Ben Carlson
Sure. There's both a top down and a bottom up element. So certainly macro views and a macro call would lead to relative positioning and say that the top of the stack, the AAA versus whether or not there's enough value, say in the all investment grade one to be going more heavily into the bbb. There's also a big bottom up component. Michael, you asked about some of the risks like the managers themselves can be risks. There are about 200 managers in the space overall and there are maybe 52 that are represented, I think was the last number in CLOI today. So they're not going to. There are Some managers that Pinebridge will stay away from, they don't believe they're good stewards of that portfolio. So there's a tiering of managers that's one risk but another sort of bottom up analysis. They literally look into the underlying loans for all of these structures and that takes a lot of systems and a lot of analysts. And that's why we hired a sub advisor for this product because they had all of this infrastructure. You can anticipate where the equity tranche might start suffering fairly significant first loss absorption or where a CLO might start breaching some of the diversification mandates that are the documentation to begin with. I mean these things, as Bill said, 150 to 350. Some structures have 450 loans in them. You won't see individual issuer concentrations typically go above 2%. No industry is going to be more than 10%. So there's all sorts of enforced levels of diversification structures that breach these or that have too much exposure to triple C rated loans. Those might be things that the sub advisor will avoid. Or maybe if the AAA tranche is trading at a significant discount to par and a breach is going to force acceleration of payments to the triple H tranche, that might actually be an opportunity. It's obviously a very nuanced market. I don't want to go too much deeper than that. But needless to say, there's a process that starts with manager assessment. It goes into looking at each individual clos or deal from documentation to what's in the portfolio. Then there's a down portfolio. Construction is a time for risk off or risk on in Cloy by the way, even risk on we're never going to be really below at least 40% in the AAA and AA tranches combined to always maintain that liquidity portion of the portfolio.
- [26:41]
Michael Batnik
So not to give your compliance people a heart attack, but we've got a lot of trading data and trading history from the high yield ETFs. They were around in, in the GFC and of course afterwards. So they lost almost 50% on a price basis just in terms of the price drawdown. In 2020 during the sharp sell off these things were down over 20%. Would you expect Cloy to trade in line with that? Like does it have that sort of potential price volatility in a nasty global event?
- [27:19]
Fran Rodolasso
Part of it is going to depend how it's allocated at that time. And that's why we have a broad strategy with that top down lens, right in terms of allocating the portfolio. So if it's mostly in AAA or AAA double A. I, I would not expect that. And that's where the active management comes in. I think with clob, which is the lower rated strategy, you could have returns certainly closer in line with what you see in high yield or leveraged loans is probably the best.
- [27:50]
Ben Carlson
The ETFs didn't exist in 2020, but there's been a broad index that's been live since about 2020, the sell off, at least in as much as it's reflected in the index performance. During 2020, the broad CLO index behaved more like investment grade corporates, which was still a very significant drawdown for that brief period.
- [28:13]
Michael Batnik
What is the case for CLOs in somebody's portfolio? What does this compete with or replace and why would you invest in this versus something else?
- [28:23]
Fran Rodolasso
The nice thing about CLOs is that they have a full capital structure. So first you have to determine what level of risk you want to take. But if you look at CLOs broadly, they've, I mean they've had the best risk adjusted return over the last decade. So you know, any exposure would have helped in a fixed income portfolio over the last decade. And when I say the best performing, I'm talking among other fixed incomes asset classes. So if you're looking at investment grade tranches, you know, we think that makes a lot of sense in an investment grade portfolio. So you would probably fund that with, you know, a core bot from a core bond fund or investment grade corporates for Treasuries. If you're looking lower in the capital structure of a cloak, that can be a really nice complement to high yield. So what are you getting? You're getting higher spreads for this per versus bonds and loans with the same rating. You're getting safety. I mean CLOs, adding investment grade CLOs, you're getting a better credit quality with very low default risk certainly versus investment grade corporates. And you're getting diversification that's both from the credit underlying credit exposure, but also the floating rate nature of CLOs versus a typically fixed rate exposure for core bonds.
- [29:43]
Michael Batnik
We had a lot of investors who wrote to us during the bond bear market and said, hey listen, I thought inflation was going to come because the government was spending trillions of dollars and I put my money to tips and I still got killed. And so I think a lot of people said, I guess the only alternative is for that environment is T bills or something that's very short term and that it's going to get the pickup. So I guess you could say in a lot of ways CLOs are kind of an answer to that, right? Where in that type of environment, a rising rate environment or a higher inflationary environment, CLOs are probably going to do better than your typical bonds. Is that fair?
- [30:20]
Ben Carlson
Yes, that would be. That's not the only case. This is a credit asset class and so it isn't just about rate protection, but in that environment of rising rates, particularly since a lot of rising rate environments are not necessarily negative credit environments, that would make clos a very attractive choice. But they are also. Take today's environment where people are expecting at least the base rate to come down another 50, 75 basis points this year, when the coupons on CLOS might come down. Then in unison with that, if credit spreads remained roughly where they are, but you're getting for AA rated CLO tranche, you're picking up about 95 basis points in spread versus a AA corporate. That spread pickup, it's been there all along and it does vary. But. But that is another thing that will draw investors to CLOs. And why the CLO ETFs have grown a lot in the last several years is not because this is some new asset class. It's an asset class that's been around for several decades, but there are a whole class of investors or several classes of investors that just didn't have access to them.
- [31:38]
Michael Batnik
Starting in 22 and going to almost a billion dollars in such a short period of time is super impressive. It speaks to. Listen, the proof is in the pudding, at least so far. Do you have any idea? I know it's tough with ETFs, but do you have a sense of who is investing in these things? Are these institutional investors or these areas? I would, I would assume that this is probably less a retail driven product and more an intermediary or institutional product.
- [31:59]
Fran Rodolasso
In our fund we're seeing most of the inflows coming from advisors, typically RIAs. They have been big adopters of CLO ETFs. I would say the other channel where this has found success is with insurance companies. So insurance companies have historically been very big investors in CLOS, but the ETFs provide them the same exposure that they've been getting, maybe through separate accounts with institutional managers, but with the liquidity so often they might use the ETF alongside, you know, individual holdings of closing.
- [32:41]
Michael Batnik
Fran, do you find this to be a more difficult investment to explain to people that are inquiring like what's your most commonly asked question?
- [32:51]
Ben Carlson
I guess to question number one? Yes, the learning curve is long and Steep. So it's usually not a one meeting or two meeting type sales process. Our sales team has spent a lot of time trying to understand what they're talking to their clients about this. That's super important. And we do like to focus on some of the risk aspects as well. It definitely takes a lot of explanation. The very first question that almost always comes up for someone new to the asset class is, isn't this what blew UP Markets in 2008 and 9? We have a pretty chart that says no. Those were other types of collateralized debt obligations in the subprime mortgage sector and global CDOs that were a kitchen sink full of everything. And these structures actually held up quite well. You didn't ask this directly, but yes, they did experience extreme price volatility back then, of course, but those permanent losses via defaults at tranches were very few and far between.
- [33:59]
Michael Batnik
So it's never a loss unless you sell. That's what we're trying. I'm only teasing, but I always like.
- [34:04]
To say that the easiest thing to sell investors is yield. And you mentioned that you have the spread over these other parts of the bond market at various credit ratings. And I think that's the easy sell is you can get a bump in yield by investing these products, correct?
- [34:21]
Fran Rodolasso
Yeah, I think it's a bump in yield and you're not taking on additional risk, the quality that you're getting along with that higher yield.
- [34:28]
Michael Batnik
So what are you giving up? Because there's gotta be something that you're. There's gotta be a give and take.
- [34:33]
Fran Rodolasso
Well, I think there's a few things. I mean, one, there's just the complexity, right? I mean, it's understanding, right. Investing in something that's complex and.
- [34:40]
Michael Batnik
All right, so what you're giving up is like a little bit of like what. What exactly am I investing in?
- [34:45]
Fran Rodolasso
Well, I mean, there's the complexity that goes along with it and of course. And like the volatility. Right. We've talked about the volatility, the spread risk. That's something that needs to be well understood, I think.
- [34:59]
Ben Carlson
And you're giving up duration. For some investors, they want the duration as one of their risk off risk management tools. And that's something they don't serve that purpose. In fact, for a lot of our investors, they've seen it as a great complement to a high quality longer duration allocation. And so it's sort of a balance that makes sense.
- [35:23]
Michael Batnik
All right, so for advisors that are listening, they're like, all right, I'm intrigued, but I definitely need to learn more because that's a lot. Where do we send them? I assume that you guys talk to advisors all day, is that right?
- [35:35]
Fran Rodolasso
Yeah, we do. And we've been having a lot of meetings on, on CLOs over the last three years. And you know, I would encourage them to go to our website, vaneck.com we've been doing a lot of educational content over the last few years. We have blogs, white papers, you know, we do webinars a lot because there's a lot of education needed. And I think that's going to continue.
- [35:55]
Michael Batnik
All right. Well, Bill and Fran, we appreciate the time today, joining us on a Friday, no less. Thank you guys. Enjoy your weekend.
- [36:00]
Fran Rodolasso
You too. Thank you.
- [36:01]
Ben Carlson
Thank you both very much.
- [36:04]
Michael Batnik
Thank you to Fran and Bill. Remember, check out vaneck.com to learn more. Email us animalspiritscompoundnews.com.