Fidelity Investments on Thursday is debuting a pair of actively managed exchange-traded funds designed to give investors access to collateralized loan obligations, known as CLOs. The firm’s entry expands a field of managers offering ETF wrappers around private credit instruments as investor appetite for the sector grows.
One of Fidelity’s new products, the AAA CLO ETF, will allocate at least 80% of its assets to loan products that carry a AAA rating, the highest available. The second offering, the Fidelity CLO ETF, is structured to invest in CLO tranches with credit ratings ranging from BBB down to B-.
"We’ve been issuing CLOs for more than two decades now, and that gives us insights into what kind of CLO offers good structural protections and has the appropriate kind of credit risk exposure," said Harley Lank, head of Fidelity’s high income and alternatives division, in comments to Reuters.
The launch follows several successful entrants to the sector. Existing CLO ETFs have gathered tens of billions of dollars since Janus Henderson introduced the Janus Henderson AAA CLO ETF (JAAA) in late 2020. That single fund now holds $26.85 billion in assets. BlackRock’s iShares AAA CLO Active ETF, which was launched three years ago, has accumulated $1.5 billion.
Other managers are also expanding their CLO ETF lineups. Reckoner Capital this week introduced four new CLO ETFs, increasing its total suite of CLO ETF products to six. PGIM’s AAA CLO ETF, which started in 2023, has drawn roughly $7.5 billion.
Analysts point to broader corporate debt issuance as a potential driver of continued CLO supply. "Given the amount of refinancing that’s going to happen to support the AI boom and just the generalized capital spending we’re seeing everywhere, it won’t surprise me to see net issuance of CLOs and other forms of corporate debt climb," said Dave Nadig, president and director of research at ETF.com.
Market strategists note that arriving later to the CLO ETF market does not necessarily prevent new entrants from finding traction. "While JAAA has a nearly insurmountable head start, this isn’t a first-mover-only category," said Bryan Armour, ETF markets strategist. Armour added that investors had directed a net $3 billion into all CLO ETFs so far this year, and that the products have attracted $13 billion over the past 12 months, suggesting sustained investor interest.
Market context
The recent inflows and the expanding roster of CLO ETFs indicate investor demand for yield and private credit exposure delivered through exchange-traded formats. Fidelity’s dual-fund launch offers investors a choice between top-tier AAA tranche exposure and funds that reach into lower-rated, higher-yielding CLO slices. The firm cites its two decades of experience issuing CLOs as a basis for selecting structures with what it views as appropriate protections and credit risk profiles.
Product details
- AAA CLO ETF - will invest at least 80% of assets in loan products with AAA ratings.
- Fidelity CLO ETF - will invest in CLO tranches rated from BBB down to B-.
Investor flows and competition
Since the launch of the first CLO ETF by Janus Henderson, the category has expanded rapidly. The JAAA fund now has $26.85 billion in assets, while other entrants like BlackRock’s iShares AAA CLO Active ETF have gathered meaningful assets as well. New offerings from managers including Reckoner and PGIM demonstrate that several firms are competing to capture investor interest in CLO exposure through ETFs.
What remains unclear from available information
The announcement highlights Fidelity’s product design and cites market flows and competitor asset levels, but specific details about expense ratios, portfolio construction beyond the stated rating bands, and liquidity management are not provided in the available comments.