In a market defined by elevated rates and persistent uncertainty, investors are rethinking how to generate income while managing risk. AAA Collateralised Loan Obligations (CLOs) tranches offer a rare combination of high-quality credit, floating-rate income, and structural resilience—making them a compelling alternative to traditional fixed income.
1. Attractive Income
Global AAA CLOs consistently deliver higher yields than other high-quality fixed income assets, including global aggregate bonds and short-term Treasuries.* This yield advantage is supported by strong demand and liquidity, offering investors a powerful tool for income generation.
2. Strong Risk-Adjusted Return Potential
AAA CLOs have historically outperformed traditional aggregate bond indices with superior risk-adjusted returns and low drawdowns. Their performance history reflects a balanced profile—delivering returns while managing volatility effectively.*
3. Low Risk
Positioned at the top of the capital stack, AAA and AA CLO tranches benefit from short duration and minimal credit risk. Over more than 30 years, these tranches have recorded zero defaults, underscoring their resilience even through market stress. Their low correlation with traditional fixed income and equities can improve overall portfolio quality and risk-adjusted returns.
*Past performance is not a guarantee or a reliable indicator of future results.
References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities. The securities referenced may or may not be held in the portfolio at the time of publication and, if such securities are held, no representation is being made that such securities will continue to be held.
The views expressed herein are those of PGIM investment professionals at the time the comments were made, may not be reflective of their current opinions, and are subject to change without notice. Neither the information contained herein nor any opinion expressed shall be construed to constitute investment advice or an offer to sell or a solicitation to buy any securities mentioned herein. Neither PFI, its affiliates, nor their licensed sales professionals render tax or legal advice. Clients should consult with their attorney, accountant, and/or tax professional for advice concerning their particular situation. Certain information in this commentary has been obtained from sources believed to be reliable as of the date presented; however, we cannot guarantee the accuracy of such information, assure its completeness, or warrant such information will not be changed. The information contained herein is current as of the date of issuance (or such earlier date as referenced herein) and is subject to change without notice. The manager has no obligation to update any or all such information; nor do we make any express or implied warranties or representations as to the completeness or accuracy.
Any projections or forecasts presented herein are subject to change without notice. Actual data will vary and may not be reflected here. Projections and forecasts are subject to high levels of uncertainty. Accordingly, any projections or forecasts should be viewed as merely representative of a broad range of possible outcomes. Projections or forecasts are estimated based on assumptions, subject to significant revision, and may change materially as economic and market conditions change.
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