Understanding Structured Credit ETFs for Investors

Structured credit ETFs are a type of investment that can be a bit tricky to understand, but don't worry, I'm here to break it down for you.

Structured credit ETFs are designed to provide investors with exposure to a diversified portfolio of credit-sensitive assets, such as bonds and loans, but with a twist - they use a combination of debt and equity to create a more stable and predictable return.

Structured credit ETFs can be a good option for investors who want to earn a regular income, but they can also be more complex and come with higher risks than traditional ETFs.

Structured credit ETFs often use a variety of financial instruments, such as collateralized loan obligations (CLOs) and mortgage-backed securities (MBS), to create a diversified portfolio that can help reduce risk.

Structured credit ETFs offer a unique way to access private credit markets.

The Virtus Private Credit Strategy ETF (VPC) is a prime example, providing exposure to business development companies and select closed-end funds at a lower cost.

Investors can gain access to private credit through a cost-efficient vehicle with VPC.

Structured credit ETFs like VPC aim to provide a more efficient and lower-cost alternative to traditional private credit investments.

Business development companies and select closed-end funds are key components of the VPC investment strategy.

Structured credit ETFs offer a cost-efficient way to access private credit through investments in business development companies and select closed-end funds.

The Virtus Private Credit Strategy ETF (VPC) is a notable example, providing exposure to private credit markets.

Investing in these ETFs can be a great way to diversify your portfolio and potentially earn higher yields than traditional bonds.

The Virtus Private Credit Strategy ETF is an interesting option for investors. It allows access to private credit through investments in business development companies and select closed-end funds.

This ETF provides a cost-efficient way to tap into private credit markets, which can be a valuable addition to a diversified portfolio.

Investors can gain exposure to private credit without having to directly invest in individual private companies or funds, which can be a complex and time-consuming process.

The investment objective of this fund is to provide capital preservation, which is a top priority for many investors.

It seeks to achieve this by investing in a portfolio of U.S. dollar-denominated AAA-rated collateralized loan obligations, or CLOs, for short.

The fund's focus on AAA-rated CLOs is a deliberate choice, as these investments are considered to be of high credit quality.

This approach aims to minimize the risk of default and provide a stable source of income.

By investing in CLOs, the fund aims to generate current income for investors, which can be an attractive feature for those seeking regular returns.

When investing in a fund, it's essential to understand the fees involved. The management fee is 0.20%.

The acquired fund fees and expenses are actually quite low, at 0.00%. This is a significant advantage for investors.

Other expenses also come in at 0.00%. This suggests that the fund is well-managed and efficient.

The expense ratio, which includes all these fees, is also 0.20%. This is a straightforward and transparent approach to fee structure.

Here's a breakdown of the fees:

When evaluating the investment's yields and distribution rate, there are a few key metrics to consider.

The 30-day SEC Yield is a significant 11.71%, indicating a high potential return on investment.

This yield is calculated based on the investment's portfolio of exchange-traded BDCs and CEFs, which have significant exposure to private credit instruments.

The distribution rate, as of February 18, 2025, is a substantial 15.46%. This means investors can expect regular payments from the investment.

Here's a breakdown of the key yield and distribution metrics:

Direct exposure is the most straightforward way to invest in a stock or bond, where you buy the actual security. This approach can be riskier, as the value of the investment can fluctuate significantly.

A $1,000 investment in Apple stock in 2010 would be worth over $10,000 today, demonstrating the potential for long-term growth.

Investing in structured credit ETFs can be a smart move, especially if you're looking for a low-volatility option. The potential for higher income with low volatility compared to fixed-rate investment grade bonds is a major draw.

With a structured credit ETF, you can gain access to high-quality AAA CLOs at a relatively low cost. This is because the expertise of the Global Fundamental Credit CLO Tranche team is leveraged, allowing for a more efficient investment process.

Structured credit ETFs like the iShares AAA CLO Active ETF offer a way to provide capital preservation and current income by investing in a portfolio of AAA-rated CLOs. This can be a great option for investors who want to balance risk and return.

The 5-year standard deviation of monthly returns for the JP Morgan CLOIE index is just 2.9%, which is significantly lower than the 5-year standard deviation of monthly returns for the Bloomberg US Aggregate Index at 5.0%. This lower volatility can be a major advantage for investors who want to minimize risk.

Angel Oak Capital Advisors has introduced its first exchange-traded fund (ETF) with a focus on structured credit assets.

The UltraShort Income ETF offers a unique blend of short-duration structured credit assets and cash-like instruments.

The ETF has already attracted significant interest from clients, growing from $2 million in seed capital to $34 million in just a few weeks.

This rapid growth is a testament to the demand for alternative investment options, particularly in a high inflation environment.

The ETF's head, Ward Bortz, notes that traditional active allocators often rely on mutual funds or separately managed accounts for fixed income investments, but these tools are limited for ETF investors.

Bortz, who has experience working with BlackRock and Invesco, believes the ETF sector is "screaming for more structured credit opportunities".

Angel Oak's UltraShort Income ETF aims to provide higher yields without sacrificing credit quality, making it an attractive option for investors seeking diversification.

The ETF's focus on investment-grade securities with maturities under one year is designed to offer stability and high returns.

A second ETF from Angel Oak is in the works, with the potential for higher returns.

The company plans to focus on developing and growing its initial ETFs before expanding into additional products.