CLOs: The Basics

Jan. 20, 2021 12:40 PM ET, , , , , 116 Comments
(29min)

Summary

  • Collateralized Loan Obligations (CLOs) can seem pretty complex, but stripped down to their essentials they are "virtual banks".
  • Traditionally CLOs were limited to institutional investors, who viewed them as a way to make "equity returns" from credit-based investments, which are essentially more stable and predictable than stocks.
  • Closed-end funds have now made CLOs available to retail investors, but the industry is playing catch-up in making itself as transparent as it needs to be to attract more investors.
  • This article won't make anyone an expert, but it's a start in the right direction.
  • This idea was discussed in more depth with members of my private investing community, Inside the Income Factory. Get started today »
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Background: "Equity Returns" With Credit Investments

I published a version of this article earlier this month for my "Inside the Income Factory" members. Collateralized Loan Obligations ("CLOs") are an ideal way to earn an equity return by making more predictable "credit bets" rather than more potentially volatile "equity

I launched Inside the Income Factory because many of my 11,000+ Seeking Alpha followers and readers of my book The Income Factory® (McGraw-Hill, 2020) said they wanted more ongoing and interactive dialogue than I could provide through less frequent public articles. It allows me to answer more member questions about how to apply our Income Factory® philosophy to earning "equity returns" from alternative, more predictable "non-equity" asset classes.

So if you want to take your Income Factory investing up a notch, please click here to learn more.

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Thanks,

Steve Bavaria


This article was written by

18.96K Followers

Steven Bavaria has 50 years of international banking and credit, journalism, and investing experience. A graduate of Georgetown University and New England School of Law, he was an executive at Bank of Boston and Standard & Poor's. His Income Factory® philosophy, outlined in his book “The Income Factory”, is designed to maximize cash income with peace of mind in all market environments.

Steven's Inside the Income Factory investing service lets hundreds of members learn and implement an Income Factory strategy alongside him. The Income Factory creates its own growth by reinvesting and compounding the "river of cash" generated by its high-yielding portfolio.  That income continues to grow through all sorts of markets - up, down, or sideways. Other features include a chat room, model portfolios, and ongoing insights into Steven's personal portfolio and his view of current economic and market trends.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of all the funds mentioned either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

PERSONAL DISCLOSURE: My articles published on Inside the Income Factory or elsewhere on Seeking Alpha, including comments, chat room and other messages, represent my own opinion based on personal knowledge and experience. I am not an investment “expert,” counselor or professional advisor, and while my articles may reflect substantially the strategies I employ in my own investing, there is no assurance that these strategies will be successful, either for me personally or for my readers. In other words, while I do my best, there is no warranty or guarantee that the ideas expressed are correct or accurate, and I urge all readers to take my opinions for what they are – “opinions” – and to do your own due diligence on, and check out personally, every investment idea, stock or fund that I may present, so you can make your own informed decisions.

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