Collateralized loan obligation ETFs are increasing in popularity with Registered Investment Advisors. Concurrently, many RIAs and wealth managers are focusing on after tax returns for their clients. Reckoner Capital Management addressed this need by listing Reckoner Yield Enhanced AAA CLO Reinvestment ETF (RAAR) and Reckoner BBB-B CLO Reinvestment ETF (RCLR).
During a recent TMX VettaFi webcast, Navigating the CLO ETF Landscape, Reckoner Capital Management CEO John Kim noted that these funds represent a massive structural pivot for the industry. Rather than mimicking existing passive funds, Reckoner offers ETFs enabling investors to obtain exposure to their actively managed CLO strategies in funds that seek to maximize reinvestment and minimize periodic distributions.
“If you’re an RIA who’s worried about 1099 income coming off monthly dividend yield, we have an offering for that,” Kim stated during the webinar
Accumulation Mechanics
RAAR and RCLR act as feeder funds to Reckoner’s flagship funds: Reckoner Yield Enhanced AAA CLO ETF (RAAA) and Reckoner BBB-B CLO ETF (RCLO). In contrast to monthly pay ETFs which are common for fixed income exposures, these funds enable investors to remain invested in the underlying core strategies to the greatest extent possible.
Because the capital remains within the fund, investors do not incur current income tax liabilities. Any potential returns recognized after maintaining a position in either RAAR or RCLR for more than 365 days are long-term capital gains.
“If you hold RAAR instead of RAAA, you will not get monthly dividends,” Kim explained. “You will see an accreting NAV (net asset value) over time because any dividends are just getting held in the fund and reinvested.”
Forward-Thinking Offerings
Both RAAR and RCLR provide exposure to institutional quality CLO investment strategies. RAAR targets the top of the capital stack with senior AAA-rated notes while RCLR captures mezzanine BB and BBB-rated tranches for potential higher-yield opportunities.
By eliminating the structural drag of automatic monthly tax events, RAAR and RCLR allow forward-thinking advisors to benefit from institutional outperformance potential with tax efficiency.
“It’s like buying a stock that will have dividends reinvested for you,” Kim said, noting that in time, the goal is to accumulate a higher NAV. “And then (in a year’s time) when you’re actually ready to make a decision to take some cash back, you can do that in a very easy way with tax efficiency.”
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For important information about the ETFs, including the prospectus, please click here https://reckoner.com/raaa/ for RAAA, click here https://reckoner.com/raar/ for RAAR, click here https://reckoner.com/rclo/ for RCLO, click here https://reckoner.com/rclr/ for RCLR.
Important Information
Carefully consider the fund’s objectives, risks, charges, and expenses before investing. The prospectus at links above or 212.597.2500 provides the full details. Read it carefully before investing.
Investing involves risk including the risk of principal loss. The fund’s principal investment risks include management risk, novel structure risk, affiliated fund risk, collateralized loan obligation risk, non-diversified fund risk, new fund risk, leverage risk, and liquidity risk. For additional information about these and other fund risks, please refer to the “Principal Investment Risks” section of the prospectus.
Any tax or legal information provided isn’t an exhaustive interpretation of current income tax regulations. Investors must consult their tax advisor or legal counsel for advice and information concerning their particular situation. Neither the Fund nor any of its representatives may give legal or tax advice.
ETFs may trade at a premium or discount to NAV. Shares of any ETF are bought and sold at market prices (not NAV) and are not individually redeemed from the Fund. Brokerage commissions will reduce returns.
Past performance is no guarantee of future results.
Collateralized Loan Obligations (“CLOs”) are structured products that issue different tranches, with varying degrees of risk, which are backed by an underlying portfolio consisting primarily of below investment grade corporate loans. Investments in CLOs presents risks similar to those of other credit investments, including interest rate risk, credit risk, liquidity risk, prepayment risk, and the risk of defaults of the underlying assets.
Distributor: Quasar Distributors, LLC.
