Barriers to entry for sophisticated asset classes like collateralized loan obligations (CLOs) are rapidly falling thanks to the ETF. Reckoner Capital Management continues to be at the forefront of democratizing access with the launch of the Reckoner BBB-B CLO Reinvesting ETF (RCLR).
RCLR provides exposure to investors seeking to diversify their fixed-income allocation through CLOs in the mezzanine tranche. Additionally, the fund is specifically engineered for those who prefer to compound their principal’s growth rather than receive monthly cash distributions.
Mezzanine Exposure Meets Reinvestment
Investors wary of CLO exposure due to limited experience with the asset class can benefit from active management. The CLO market has its own unique set of risks and complexities. This requires the assistance of Reckoner’s portfolio managers who know how to deftly navigate the CLO market.
RCLR targets debt tranches rated BBB and BB. These mezzanine tranches provide investors with higher yield profiles compared to senior AAA tranches while still benefiting from the structural subordination inherent in the asset class.
What makes RCLR distinct from comparable Reckoner funds, such as the Reckoner BBB-B CLO ETF (RCLO), is its distribution-minimization strategy. RCLO pays out monthly dividends while RCLR is specifically designed to minimize distributions and remain invested in the underlying portfolio. This will allow investors to potentially maximize long-term total return through compounding, without the current income tax implications of monthly payouts.
Why RCLR is Relevant Today
The macroeconomic environment continues to pose uncertainty not just for the equities market but also for fixed income. That said, RCLR may be a timely option for diversifying fixed-income portfolios with CLOs.
This asset class comes backed by senior secured corporate loans, which are typically floating-rate instruments. Inflation remains sticky, so the floating-rate nature of CLOs provides a much-needed hedge against interest-rate volatility.
The reinvestment strategy we believe is ideal for high-net-worth investors in high-tax brackets. As mentioned, minimizing monthly payouts may prevent constant tax liabilities while still allowing investors to fully participate in the credit markets and defer capital gains taxes until the fund’s shares are sold.
Mezzanine tranches in CLOs were once only accessible to large institutional investors. However, RCLR provides this institutional level of alpha to the retail market. At 60 basis points, it accomplishes this through an actively managed fund that offers the inherent benefits of intraday liquidity and transparency in an ETF wrapper.
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Important Information
Carefully consider the fund’s objectives, risks, charges, and expenses before investing. The prospectus at www.reckoner.com/rclr provides the full details. Read it carefully before investing. Investing involves risk including the risk of principal loss.
Each of the fund’s above have various principal investment risks which may include 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 the 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, with 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, including interest rate risk, credit risk, liquidity risk, prepayment risk, and the risk of defaults of the underlying assets. Distributor: Quasar Distributors, LLC.