While the US contains the world’s largest collateralised loan obligations (CLOs) market, European regulation prevents most of these CLOs from being wrapped within the region.
The ‘skin in the game’ rule in European regulation requires issuers of collateralised loan obligations (CLOs) to retain a 5% stake in their products, while the US no longer enforces a similar requirement.
Despite the US CLO market being multiples bigger than Europe, AAA European CLOs offer greater liquidity than high-yield bonds, according to a source familiar with the matter.
Regulatory differences also depend on the ETF's domicile. Luxembourg is preferred for 100% CLO exposure, while Ireland caps it at 20%, though this is set to be changed.
ETF industry reacts to Trump re-election
The re-election of Donald Trump has sparked reactions across the ETF industry.
US equities surged as the S&P 500 reached 6,000 points and small-cap stocks climbed 5.8%, driven by optimism around potential tax cuts and deregulation.
Meanwhile, fixed-income markets faced pressure. Arun Sai, senior multi-asset strategist at Pictet Asset Management, noted that with a Republican clean sweep, "federal debt will go up sharply," potentially leading to a negative outlook for US treasuries.
The energy sector showed mixed reactions. Traditional energy ETFs gained traction amid expectations of deregulation, while clean energy ETFs declined due to concerns over potential policy rollbacks.
Andrew Smith, client portfolio manager, US equities at Columbia Threadneedle said while there might be "some tinkering at the margin with the Inflation Reduction Act (IRA)," a wholesale repeal is unlikely.
Concentrated ETF launches
This week, Janus Henderson and BlackRock introduced active and passive ETF strategies featuring concentrated portfolios.
The iShares S&P 500 Top 20 UCITS ETF (SP20) tracks the S&P 500 Top 20 index comprised of the largest constituents of the S&P 500 index, providing more granular exposure to the largest US equities.
Meanwhile, the Janus Henderson Tabula European High Conviction Equity UCITS ETF (JCEU) is an actively managed, high-conviction strategy investing in 20 to 25 large and mid-cap European companies.
While concentrated active ETFs remain a niche part of the market, launches in the space are beginning to pick up pace.
