Franklin Templeton announced the launch of the Franklin BSP CLO ETF (YCLO or the Fund), an actively managed CLO ETF designed to seek capital preservation and current income by investing predominantly in investment grade collateralized loan obligation (CLO) debt tranches across U.S. and European markets. The Fund is managed by Franklin Advisers, Inc., with sub-advisory services provided by Benefit Street Partners (BSP), Franklin Templeton?s alternative credit specialist investment manager. The Fund draws on the scale and depth of BSP?s Structured Credit platform, which was founded in 2009 and manages over $9 billion of AUM.
The team invests using rigorous credit underwriting, portfolio construction, and active risk management. YCLO provides access to a compelling institutional asset class that offers floating-rate income, structural protections, and diversification potential within traditional fixed income portfolios. YCLO is differentiated by the ability to invest dynamically across both U.S. and European CLO markets.
The CLO market and its investor base have continued to grow, while performance across CLO securities has become more differentiated in the current market environment. This creates opportunities for BSP to apply its global relative value approach and active risk management within an ETF structure. YCLO combines BSP?s deep CLO expertise with Franklin Templeton?s scale, distribution reach and ETF capabilities, giving advisors and investors access to an actively managed approach to CLO debt.
As market conditions continue to evolve, strategies like YCLO can play an important role in helping clients access differentiated sources of income through a familiar and efficient ETF structure. ETFs and ETPs trade like stocks, fluctuate in market value and may trade at prices above or below the ETFs/ETPs net asset value. Brokerage commissions and ETF/ETP expenses will reduce returns.
ETF/ETP shares may be bought or sold throughout the day at their market price, not their Net Asset Value (NAV), on the exchange on which they are listed. Shares of ETFs/ETPs are tradable on secondary markets and may trade either at a premium or a discount to their NAV on the secondary market. All investments involve risks, including possible loss of principal.
Collateralized Loan Obligations (CLOs) are complex investments and not suitable for all investors. CLOs carry risks largely dependent on the type of collateral held by the special purpose entity (SPE) and the tranche of the CLO in which the Fund invests. Although the Fund will invest primarily in investment grade-rated tranches, ratings may be downgraded, and even highly rated tranches can face defaults in stressed markets.
CLOs are managed by independent entities responsible for selecting and managing the underlying loan collateral, adding another layer of risk. An investment in a CLO can lose value. Floating-rate loans and debt securities are typically rated below investment grade and are subject to greater risk of default, which could result in loss of principal.
Fixed income securities involve interest rate, credit, inflation and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. Low-rated, high-yield bonds are subject to greater price volatility, illiquidity and possibility of default.
Liquidity risk exists when securities or other investments become more difficult to sell, or are unable to be sold, at the price at which they have been valued. International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets.
To the extent the portfolio invests in a concentration of certain securities, regions or industries, it is subject to increased volatility. Derivative instruments can be illiquid, may disproportionately increase losses, and have a potentially large impact on performance. The portfolio is, or could become, non-diversified and may invest in a relatively small number of issuers, which may negatively impact the performance and result in greater fluctuation in value.
The fund is newly organized, with a limited history of operations. These and other risks are discussed in the fund?s prospectus.
