Aside from their long-term non-recourse nature, one of the keys to their success lies in the diversified nature of their underlying portfolios. But what does this really mean?
Well, a single CLO portfolio may be exposed to over 25 different industries based on Moody’s classification. And that’s not all – in Europe, country diversification adds yet another layer of diversification to the mix.
But let’s delve deeper into the topic. This edition of Musings focuses on the industry overweight and underweight positions of top-tier US and EU CLO managers in 2021 vintage deals. When a manager’s average industry exposure exceeds the sample average exposure by two percentage points, it is considered an overweight position, while an underweight position means the manager’s average industry exposure is two percentage points less than the industry average exposure.
While it is challenging to identify the exact industry exposures that drove their investment performance, it is noteworthy that three of the top five US CLO managers were overweight in Healthcare & Pharmaceuticals, and two of them were overweight in High Tech Industries. Moreover, three of them were underweight in Media: Broadcasting & Subscription, and two of them were underweight in Telecommunications.
Over in Europe, three of the top five EU CLO managers were underweight in Beverage, Food & Tobacco industries, and three were underweight in Chemicals, Plastics & Rubber industries. Two of them, however, held an overweight position in the Healthcare & Pharmaceuticals industry, while two had an underweight position. What’s interesting is that despite these varying industry positions, these managers still managed to perform well. This highlights how investors can achieve diversification within the CLO market, making it an exciting area to watch!
The information, research, data, research-related opinions, observations, and estimates contained in this document have been compiled or arrived at by CLO Research Group, based upon sources believed to be reliable and accurate, and in good faith, but in each case without further investigation. None of CLO Research Group or its service providers; authorised personnel, or their directors make any expressed or implied presentation or warranty, nor do any of such persons accept any responsibility or liability as to the accuracy, timeliness, completeness, or correctness of such sources and the information, research, data, research related opinions, observations and estimates contained in this document. All information, research, data, research-related opinions, observations, and estimates in this document are in draft form as of the date of this document and remain subject to change and amendment without notice. Neither CLO Research Group nor any of their third-party providers shall be subject to any damages or liability for any errors, omissions, incompleteness, or incorrectness of this document. This article is not and should not be construed as an offer, or a solicitation of an offer, to buy or sell securities and shall not be relied upon as a promise or representation regarding the historical or current position or performance of any of the deals or issues mentioned in it.