A new Federal Reserve chair and market uncertainty continue to emphasize an ongoing search for yield. In this case, corporate bonds are a default choice, but there’s another option that many may not be aware of. Mezzanine collateralized loan obligations (CLOs) — specifically those rated BBB — provide compelling yield potential.

CLOs are a nuanced corner of the fixed income market, as John Kim (CEO of Reckoner Capital Management) explained during a recent TMX VettaFi webcast, Navigating the CLO ETF Landscape. CLO bonds “have traded wide to corporate yields,” with the primary reason being complexity, though “they are much more reliable, and they have a much better performance history than corporates do as a whole.”

See more: How BBB-B CLOs Seek to Outshine High Yield Corporates in 2026

The Advantage of CLOs

The core advantage of a BBB CLO is its underlying collateral. Standard investment-grade corporate bonds typically consist of unsecured obligations exposed to direct company defaults. Conversely, BBB CLO tranches are backed by a diversified pool of senior secured loans that sit at the top of the corporate capital structure. This grants them first-priority claims on corporate assets.

Furthermore, if the underlying loan portfolio is stressed, rule-based coverage tests systematically divert cash flows from equity holders to support or pay down senior notes. This structure provides additional risk management to BBB tranches as opposed to corporate bondholders who are fully exposed to issuer defaults.

This structural disparity can create a powerful, potentially persistent arbitrage window for savvy investors. It allows them to capture yield potential from what has historically been a zero-default asset class in the post-2008 crisis era.

“If you are willing to understand the pros and cons of going down the stack, BBB and BB are the biggest bang for your buck,” Kim said. “You are getting senior-level impairment rates at mezzanine yield potential. And that is one of the greatest arbitrage opportunities that we can find in the credit markets globally today.”

An Active Option

Those investors looking for exposure to BBB CLOs can do so via an actively managed fund in the Reckoner BBB-B CLO ETF (RCLO). RCLO’s actively managed approach allows for extreme selectivity. The fund managers can allocate to tranches that offer the most compelling yield potential per unit of risk.

For investors seeking focused exposure to a CLO market that carries its own unique set of risks and complexities, RCLO is a compelling option that emphasizes pure active conviction as opposed to broad-market diversification.

Click here for additional information on RCLO.

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Important Information

A prospectus and a summary prospectus which contains this and other information about the fund may be obtained by visiting https://funds.reckoner.com/assets/pdfs/RAAA-RCLO-Prospectus.pdf or call 212.597.2500. Please read each prospectus carefully before investing.

Each fund’s principal investment risks include all or some of the following risks: management risk, novel structure risk, affiliated fund risk, collateralized loan obligation risk, non-diversified fund risk, new fund risk, leverage risk, and liquidity risk. For additional information about these and other fund risks, please refer to the “Principal Investment Risks” section of each prospectus.

ETFs may trade at a premium or discount to NAV. Shares of any ETF are bought and sold at market prices (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.

Past performance is no guarantee of future results.

Collateralized Loan Obligations (“CLOs”) are structured products that issue different tranches. They feature varying degrees of risk, which are backed by an underlying portfolio consisting primarily of below investment grade corporate loans. Investments in CLOs presents risks similar to those of other credit investments. That includes interest rate risk, credit risk, liquidity risk, prepayment risk, and the risk of defaults of the underlying assets.