Eldridge CLOZ ETF yields 11% annualised return amid rate volatility

The Eldridge BBB-B CLO ETF (NYSEARCA:CLOZ) has generated approximately 11% annualised returns since its inception in January 2023, leveraging a strategy designed to thrive in a high-interest-rate environment. By holding floating-rate mezzanine tranches of collateralised loan obligations, the fund’s coupons reset with short-term benchmarks, allowing it to benefit directly from the Federal Reserve’s prolonged period of elevated rates.

The fund targets USD-denominated CLO tranches rated between BBB+ and B-, positioning itself in the mezzanine layer of the credit risk ladder. This structure allows investors to capture a yield pickup over safer AAA-rated alternatives while maintaining structural protections above the equity tranche. The fund’s assets under management have climbed to approximately $761 million, reflecting sustained interest from both retail and institutional buyers seeking income in a challenging bond market.

With the 3-month Treasury rate near 3.84%, the fund’s SEC 30-day yield stands at roughly 7.3%. Trailing 12-month distributions total approximately $1.93 per share, paid monthly. Since its launch, CLOZ has produced a cumulative return of about 37%, outperforming many long-duration bond funds that have struggled with duration headwinds from rising 30-year Treasury yields.

However, the fund’s performance is intrinsically linked to the interest rate cycle. Monthly distributions have decreased from a peak of $0.22 per share in 2024 to approximately $0.17 per share in 2026, correlating with the Federal Reserve’s rate cuts. As short-term benchmarks decline, the floating-rate coupons reset lower, directly compressing the fund’s payout capability.

Credit risk remains a defining characteristic of the strategy. Unlike AAA-rated CLO funds such as JAAA, which act as defensive hedges, CLOZ moves in correlation with equities during credit events. A recession that pushes corporate defaults higher would likely widen credit spreads and hit the mezzanine tranches before affecting safer tiers. The fund carries a 0.50% expense ratio, which the source describes as defensible for active credit selection in a market that is otherwise inaccessible to retail investors.

While the word "CLO" carries historical stigma from the 2008 financial crisis, modern structures involve diversified pools of senior secured business loans with overcollateralisation tests. Historical default rates for these instruments have been low, though not zero. The fund is positioned as a yield enhancer for investors comfortable with credit risk rather than duration risk, offering a resettable coupon in exchange for higher volatility during economic downturns.