Reckoner Yield Enhanced AAA CLO ETF Stock Price, News & Analysis

The Reckoner Yield Enhanced AAA CLO ETF (NYSE: RAAA), also described as the Reckoner Leveraged AAA CLO ETF, is an actively managed exchange-traded fund sponsored by Reckoner Capital Management. According to Reckoner, the fund focuses on AAA-rated collateralized loan obligation (CLO) bonds and is designed to combine a high degree of capital preservation with the potential for enhanced yield through the use of modest leverage.

Reckoner Capital Management is described as a global asset management firm with specialized expertise in alternative credit. The firm emphasizes its experience in structuring complex alternative credit solutions and managing levered credit investment vehicles. RAAA reflects this focus by investing primarily in senior, AAA-rated, floating rate CLO bonds that sit at the top of the CLO capital structure.

Investment approach and portfolio construction

According to information provided by Reckoner, RAAA seeks to deliver attractive risk-adjusted returns through a combination of asset selection, portfolio construction, and active management. The ETF invests in a diverse portfolio of primarily AAA-rated, floating rate CLO bonds, which are described as being designed to offer a hedge against interest rate volatility. The selection process is described as rigorous and data-driven, taking into account factors such as the investment skill, process, track record, reputation, and risk appetite of CLO managers.

The fund’s strategy is based on accessing attractive senior AAA CLO bonds through Reckoner’s longstanding industry relationships. These bonds are positioned at the top of the CLO capital structure, which, according to the sponsor, is intended to support a high degree of capital preservation while still offering exposure to alternative credit markets.

Use of leverage and risk profile

RAAA is described as being different from most funds because it seeks leveraged returns. The ETF uses reverse repurchase agreements and other short-term repurchase agreements to borrow and create a modest amount of leverage, with leverage in the fund expected to be limited to 50%. Reckoner states that it will dynamically manage this leverage, with the intention of increasing leverage during periods of economic stability and reducing it during periods of market volatility.

The sponsor notes that this use of leverage makes RAAA riskier than funds that do not use leverage. Periods of higher market volatility may affect the fund’s return more than the returns of unlevered funds. As a result, the ETF is described as being suitable for knowledgeable investors who understand the potential consequences of seeking leveraged investment results and who are prepared to actively manage and monitor their investments.

Role of CLOs in the strategy

RAAA invests in CLO securities, which are structured products backed primarily by portfolios of below investment grade corporate loans. CLOs issue different tranches with varying degrees of risk, and RAAA focuses on the AAA-rated tranches. According to the disclosures, investments in CLOs involve risks similar to other credit investments, including interest rate risk, credit risk, liquidity risk, prepayment risk, and the risk of defaults in the underlying assets.

The fund’s emphasis on AAA-rated, floating rate CLO bonds is positioned by Reckoner as a way to seek diversification, attractive yields, low default risk, and potential inflation protection within the broader alternative credit universe, while recognizing that CLO investments carry their own set of risks.

Active and dynamic management

Reckoner highlights its use of active and dynamic portfolio management for RAAA. The team applies risk control capabilities such as hedging strategies and downside risk scenario analysis when managing the CLO bond portfolio and associated leverage. The objective, as stated by the sponsor, is to help generate attractive yields while managing downside risk in changing market conditions.

The ETF structure allows shares of RAAA to be bought and sold on the secondary market at market prices, which may trade at a premium or discount to the fund’s net asset value (NAV). The sponsor notes that premiums and discounts can widen, particularly during periods of market volatility or when trading activity in the shares is limited.

Investor considerations and structure

RAAA is described as a recently organized investment company with no operating history at the time of the referenced communication. Like other ETFs, its shares trade intraday on an exchange, and market price returns may differ from returns calculated using the daily NAV. The sponsor notes that this difference can be more pronounced during periods of steep market declines, heightened volatility, or limited trading activity.

Unlike many ETFs that primarily use in-kind creations and redemptions, RAAA expects to effect most of its creations and redemptions primarily for cash. According to the disclosures, this approach may cause the fund to incur portfolio transaction fees, realize gains or losses on sales, or experience charges or delays in investing cash that might not occur if transactions were made on an in-kind basis.

The fund’s investment in debt securities also exposes it to liquidity risk, interest rate risk, floating-rate obligations risk, call risk, and extension risk, as described in the sponsor’s disclosures. Prospective investors are directed by the sponsor to review the fund’s prospectus for a full discussion of objectives, risks, charges, and expenses.

About Reckoner Capital Management

Reckoner Capital Management is described as an employee-owned, global asset management firm with specialized expertise in alternative credit. The firm states that it focuses on delivering investment performance to institutional and retail clients by creating bespoke solutions and products aligned with client objectives. Reckoner emphasizes its experience, expertise, and relationships in bringing differentiated alternative credit investments to both institutional and individual investors.

The firm notes that its management team has worked together for an extended period and has previously managed a substantial amount of alternative credit assets at a prior firm. Reckoner is backed by RedBird Capital Partners, which is described as a private equity firm with significant assets under management.