PGIM Launches AAA CLO ETF, Providing Retail Investors Access to Thriving CLO Market

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PGIM, the $1.2 trillion global investment management business of Prudential Financial, Inc., has introduced the PGIM AAA CLO ETF (PAAA), presenting retail investors with a direct opportunity to participate in the expanding $1.2 trillion collateralized loan obligation (CLO) market. Historically, this market has been accessible solely to institutional investors, making the launch of PAAA a significant move in democratizing CLO investments.

The ETF is subadvised by PGIM Fixed Income, a prominent manager in securitized credit and leveraged finance with $101 billion in securitized credit assets under management, including $55 billion in CLO tranches. Although PAAA marks a new retail offering for the firm, PGIM Fixed Income has been managing high-grade CLOs within its investment strategies for over 15 years, with a dedicated team of 27 investment professionals focused on securitized credit.

According to Edwin Wilches, co-portfolio manager of the PGIM AAA CLO ETF, the CLO market has evolved significantly since the Global Financial Crisis, presenting a substantial and relatively untapped opportunity for retail investors. High-quality CLOs are an attractive proposition in today’s fixed income market due to their potential for attractive yield, floating rate coupons, and credit protection in AAA tranches.

Priced competitively with a net expense ratio of 0.19%, PAAA aims to maximize total return by primarily investing in U.S. CLOs rated AAA or equivalent. The fund focuses on the senior tranches of CLOs, which typically carry the highest ratings, lower risk levels, and lower relative yields.

As economic uncertainty persists and tighter financial conditions may lead to increased corporate defaults, high-quality CLOs are positioned to provide portfolio insulation and diversification benefits with reduced idiosyncratic risk and potential for attractive risk-adjusted returns, as highlighted by Wilches.

In addition to PAAA, PGIM has also introduced the PGIM Short Duration Multi-Sector Bond ETF (PSDM), designed to deliver total return by allocating investments across various fixed income sectors with an average portfolio duration of three years or less. This ETF closely mirrors the existing $2.9 billion PGIM Short Duration Multi-Sector Bond Fund.

With these new offerings, PGIM Investments now offers a comprehensive suite of 10 actively managed ETFs across fixed income, equities, and multi-asset solutions, catering to the growing demand for active ETFs in the market.

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