Nuveen bolsters alts shelf with CLO ETF launch

Nuveen, the investment manager for TIAA, is tapping into the growing revival of demand for CLO strategies with its own ETF targeting the alternative asset class.

Unveiled on Tuesday, the Nuveen AA-BBB CLO ETF, trading under the ticker NCLO, is designed to provide investors with a high level of current income and total return.

While the majority of similar ETFs mainly have exposure to triple A-rated CLOs, the firm said its strategy will focus on single A-rated CLOs, mainly prioritizing AA to BBB-rated tranches.

"To complement traditional income portfolios, and with increased awareness of the robust yields and lower historical defaults of CLOs, we're seeing significant demand among our clients for this attractive alternative credit allocation," Jeff Carlin, head of global wealth advisory services at Nuveen, said in a statement.

As floating-rate instruments, CLOs have the benefit of coupons that reset with interest rates typically on a quarterly basis. That makes them less vulnerable to rising rates – which has been the recent trend on the long end of the yield curve amid fears of higher deficits and long-term inflation – compared to other fixed-rate options.

While CLOs and their sister strategies, CMOs, fell out of favor thanks to the sour taste securitized debt products left in investors' mouths in the wake of the 2008 financial crisis, the products have come back in vogue of late as the intervening years of elevated government scrutiny and macroeconomic developments reignited their appeal among advisors.

According to one snapshot report from Bank of America, ETFs have become the vehicle of choice to get exposure to the asset class, injecting $9.5 billion into leveraged loan CLOs from the beginning of 2024 until October. The lion's share of the cash in those ETFs went into AAA bonds, and assets managed in CLO-focused ETFs totaled $16 billion, more than triple the amount for the same period in 2023.

Apart from NCLO, Nuveen says it's planning to tap into the CLO trend again in early 2025 with plans to launch the Nuveen Enhanced CLO Income Fund, which it expects will generate high current income through investments in both primary and secondary markets.. This proposed interval fund will result from converting the Nuveen CLO Opportunities Fund, a limited partnership, into a fund focused on mezzanine and equity tranches of broadly syndicated loan CLOs.

Nuveen’s leveraged finance team manages $17.8 billion in CLO assets as part of its $43 billion in alternative credit strategies.

To help advisors get to grips with alternative investments, the firm has also launched the Private Markets Institute, providing advisors with educational tools and strategies for integrating private market assets into client portfolios.

"[W]e provide a step-by-step educational process that advisors can 'enter' at whatever point makes most sense for them and their clients," said Joy Crenshaw, head of advisor development at Nuveen. "Advisors have also recognized that they can enhance their value proposition with clients by helping them access alternative assets."