Invesco ETF launches five new ETFs on LSE

Invesco ETF Launches Five New ETFs, the First USD AAA CLO UCITS ETF in Europe Alongside an EUR AAA CLO UCITS ETF, to Offer Professional Investors Over 25 Years of CLO Notes Management Experience

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Gary Buxton, Head of ETFs and Index Strategies for EMEA and APAC at Invesco

Invesco is launching two actively managed UCITS ETFs that offer exposure to the highest-rated tranches of the Collateralized Loan Obligations (CLO) market. The Invesco USD AAA CLO UCITS ETF* and the Invesco EUR AAA CLO UCITS ETF* leverage the combined strength of Invesco’s global franchises in private credit and ETFs, two of the company’s largest and fastest-growing investment areas. The Invesco USD AAA CLO UCITS ETF* is the first UCITS ETF domiciled in Europe to provide diversified exposure to USD AAA CLO notes, the largest and most liquid CLO market in the world.

*These products are intended exclusively for professional investors.

Stephanie Butcher, Co-Head of Investment at Invesco, stated: “Clients choose Invesco for the completeness and breadth of our offering, from asset class to investment style, to the choice of investment vehicle. Our goal is to deliver the best outcomes for our clients by enabling highly experienced teams to focus on their core areas of expertise, and we can leverage this advantage by combining specializations to further benefit our clients. For example, we have successfully combined our expertise in private credit and ETF construction in the US for 15 years, and we expect the launch of this type of actively managed ETF to drive growth in Europe.”

Michael Craig, Head of European Senior Loans at Invesco Private Credit, stated: “How you gain exposure to this $1.3 trillion asset class is crucial, and having an experienced manager making investment decisions can make a difference. With over 25 years of experience as both an investor and issuer of CLOs, we know that the quality of the CLO manager is critical to performance through market cycles. Our active security selection, risk management process, and market presence add significant value. While aiming to achieve index-like performance, we are not constrained and actively select each security we invest in based on its merit. We focus on CLOs from high-quality managers we trust, as they tend to exhibit lower volatility and better liquidity in market stress conditions. We regularly stress-test our portfolios to simulate these scenarios.”

Gary Buxton, Head of ETFs and Indexed Strategies for EMEA and APAC at Invesco, stated: “Last year’s record flows highlight the importance of the ETF segment. The assets in ETFs we manage in Europe grew by 40% in 2024, and we believe demand should continue to expand with the creation of more ETFs capable of providing investors with efficient exposure to new asset classes, including those that are difficult to access. For example, although the CLO market has grown rapidly, with issuance nearly doubling in the past five years, it is only recently that investors have been able to access it through an ETF, first in the US and now in Europe. This exposure opens up CLO investments to a broad range of sophisticated investors.”

Invesco’s New UCITS CLO ETFs

The new ETFs aim to provide consistent income and preserve capital over the long term by investing primarily in the AAA-rated tranches of floating-rate debt securities issued by CLOs. One will invest primarily in USD-denominated assets, and the other in EUR-denominated assets. At least 80% of the CLO debt securities in which the ETFs will invest will have a AAA rating, while the remainder will still be investment grade and will mainly consist of the second highest-rated AA tranches.

Michael Craig explained: “The AAA tranche of CLOs offers an increased spread over other similarly rated instruments while never having defaulted. Their floating-rate nature means they have a low correlation with many other fixed-income asset classes, making them attractive to professional investors seeking diversification.”

As UCITS ETFs, these funds differ from similar products in the US. Under the European Securitisation Regulation, the funds can only invest in CLOs where the originator, sponsor, or original lender has disclosed that it retains – at issuance and on an ongoing basis – a net economic interest in the CLO of at least 5%, ensuring that managers have skin in the game.

Collateralized Loan Obligations (CLOs)

A CLO is a special purpose vehicle that issues debt securities backed by a pool of primarily senior secured corporate loans. The CLO issues securities in different classes (or “tranches”) for investors with varying risk tolerances.

Distributions from the CLO’s pool of assets are paid based on seniority, with the highest-rated AAA tranche paid first, then the next lower-rated tranche, and finally to the equity holders. This “cashflow waterfall” feature ensures that the highest-rated AAA tranches are the most protected, which is why no USD or EUR AAA-rated CLO has ever defaulted.

ETF Details

Source: ETFWorld.co.uk