This episode explores collateralized loan obligations (CLOs) and their role in the fixed-income market. Against the backdrop of the 2022 bond bear market, the discussion highlights the appeal of CLOs, particularly their floating-rate nature which provided relative stability during periods of rising interest rates. More significantly, the conversation delves into the structure of CLOs, explaining their tiered tranches with varying levels of risk and return, and how this structure mitigates losses. For instance, the interview details how the floating rate and spread pickup helped CLOs perform well in 2022, contrasting with the losses experienced by fixed-income investors. The guests also discuss the investment process, emphasizing the importance of active management and diversification across the capital structure. Finally, the episode concludes by outlining the advantages of CLOs as a complement to existing fixed-income portfolios, offering diversification and potentially higher yields, while acknowledging the complexity and volatility inherent in this asset class.
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Talk Your Book: Floating Rate Income | Animal Spirits Podcast | Podwise
