Allocating to AAA collateralised loan obligations (CLOs) can provide steady access to attractive, low-risk income from differentiated return sources. CLOs tend to offer higher yields than comparably rated corporate bonds while trading independently from traditional fixed income. Featuring high credit quality, strong structural protections and floating rates, AAA CLOs historically deliver strong diversification and downside protection, qualities that make them appealing in certain defensive applications.
Explore the role AAA CLOs can play in portfolios today.
Risks
An investment in the Fund involves a high degree of risk, including the risk that the entire amount invested may be lost. The Fund is primarily designed to purchase certain investments, which will introduce significant risk to the Fund, including asset performance, price volatility, administrative and counterparty risk. The return may increase or decrease as a result of currency fluctuations. Also, the use of financial derivative instruments may result in increased gains or losses within the Fund.
There is no guarantee that the Fund will achieve its investment objective. Prospective and existing investors should carefully consider the risks involved in an investment in the Fund. In addition to reading this document, prospective and existing investors should read the Waystone UCITS Platform (Lux) SICAV’s Prospectus, Supplement and Key Investor Information Document (the “KIID”) or Key Information Document (the “KID”) (collectively the "Fund Documents") and consult their own legal, tax and financial advisors about the risks of investing in the Fund. Investments are not guaranteed by PGIM, its affiliates, or any governmental agency.
Political Risk: The value of the Fund’s investments may be affected by uncertainties such as international policy developments, social instability and changes in government policies. This can result in more pronounced risks where conditions have a particular impact on one or more countries or regions.
CLO Risks: The Fund invests a substantial proportion of its assets in senior tranches of CLOs. However, there is no requirement that the Fund’s investments be made at the most senior level of notes issued by the relevant CLO vehicle. CLOs, like all debt securities, are subject to the risk of default of principal and interest. CLOs are subject to credit, interest rate, valuation, and prepayment and extension risks. It is possible the even senior CLO debt tranches could experience losses due to default, downgrades of ratings of the underlying collateral and the default of the lower tranches, market anticipation of defaults and investor aversion to CLOs as an asset class. Some of the loans in which an underlying CLO may invest and to which the Fund may indirectly be exposed may be “covenant-lite”, which means the loans or obligations contain fewer financial maintenance covenants than other loans or obligations (in some cases, none) and do not include terms which allow the lender to monitor the borrower’s performance and declare a default if certain criteria are breached. An investment by the Fund in a CLO holding loans may potentially hinder the ability to reprice credit risk associated with the CLO. As a result of this risk, the Fund’s exposure to losses may be increased, which could result in an adverse impact on the Fund’s net income and NAV.
Regulatory Risks: Adverse developments with respect to CLO managers, such as regulatory issues or other developments that may impact the ability and/or performance of the CLO manager, may adversely impact the performance of the CLO securities in which the Fund invests. Investors should be aware that the Investment Manager and the Fund will be subject to the Securitisation Regulation, which may be amended over time. The nature of such amendments and their impact on the Fund are unknown.
Please click on this PGIM Funds plc disclosure link for important information.
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