In today’s episode, special guest Mark Jarosz and host Zayla Saunders revisit CLO ETFs. This time, they explore the middle of the capital stack that has BBB-tranches, which they're calling a sweet spot. Stay tuned to find out why.
Recorded live on October 14, 2025.
ETFs:
30-Year History of Credit Default for AAA-rated tranches (zero defaults) and for BBB-rated tranches (low): Bloomberg, as of December 31, 2024 (Jan-1995 to Dec-2024). Past default rates are not indicative of future default rates.
Disclaimers:
Please see the full CLO ETFs disclaimers here.
CLOs are floating- or fixed-rate debt securities issued in different tranches, with varying degrees of risk, by trusts or other special purpose vehicles (“CLO Issuers”) and backed by an underlying portfolio consisting primarily of below investment grade corporate loans. The BMO ETF pursues its investment objective by investing, under normal circumstances, at least 85% of its net assets in CLOs that, at the time of purchase, are rated AAA or the equivalent by a nationally recognized statistical rating organization. The BMO BBB CLO ETF pursues its investment objective by investing, under normal circumstances, at least 75% of its net assets in CLOs that are BBB-rated at the time of purchase.
AAA herein refers to the order of payments, should there be any defaults, and does not represent the ratings of the underlying loans within the CLO. If there are loan defaults or the CLO Issuer’s collateral otherwise underperforms, scheduled payments to senior tranches take precedence over those of mezzanine tranches (a tranche or tranches subordinated to the senior tranche; e.g., AAA tranches are the most senior, while BBB tranches are mezzanine-level), and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity tranches. The riskiest portion is the “Equity” tranche, which bears the first losses and is expected to bear all or the bulk of defaults from the corporate loans held by the CLO Issuer serves to protect the other, more senior tranches from default.
Any statement that necessarily depends on future events may be a forward-looking statement. Forward-looking statements are not guarantees of performance. They involve risks, uncertainties and assumptions. Although such statements are based on assumptions that are believed to be reasonable, there can be no assurance that actual results will not differ materially from expectations. Investors are cautioned not to rely unduly on any forward-looking statements. In connection with any forward-looking statements, investors should carefully consider the areas of risk described in the most recent prospectus.
All investments involve risk. The value of an ETF can go down as well as up and you could lose money. The risk of an ETF is rated based on the volatility of the ETF’s returns using the standardized risk classification methodology mandated by the Canadian Securities Administrators. Historical volatility does not dictate how volatile an ETF will be in the future. An ETF with a risk rating of “low” can still lose money. For more information about the risk rating and specific risks that can affect the BMO CLO ETF's returns, see the relevant prospectus.
Changes in rates of exchange may also reduce the value of your investment. Distributions are not guaranteed and are subject to change and/or elimination.
BMO Global Asset Management is a brand name under which BMO Asset Management Inc. and BMO Investments Inc. operate.
This podcast is for information purposes. The information contained herein is not, and should not be construed as, investment, tax or legal advice to any party.
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