Collateralised loan obligations – a risky bet on inflation

Collateralised loan obligation funds are complex, but could be worth a look for investors who understand the dangers, says David Stevenson.

Someone cutting cash cake
CLOs: lots of layers
(Image credit: © Getty Images)

For someone who likes adventurous ideas, I must admit I’m nervous mentioning collateralised loan obligations (CLOs) in a publication aimed at private investors. These securities are complex, they can be volatile and they are largely held by institutions. They are a high-risk, high-return investment that is the first to get burnt in a crisis.

However, for the most part CLOs have survived the global financial crisis (GFC) and the pandemic intact, and have gone on to prosper. If you understand the risks and want a robust income in this inflationary environment, listed CLO funds could be worth exploring.

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David C. Stevenson
Contributor

David Stevenson has been writing the Financial Times Adventurous Investor column for nearly 15 years and is also a regular columnist for Citywire. He writes his own widely read Adventurous Investor SubStack newsletter at davidstevenson.substack.com

David has also had a successful career as a media entrepreneur setting up the big European fintech news and event outfit www.altfi.com as well as www.etfstream.com in the asset management space. 

Before that, he was a founding partner in the Rocket Science Group, a successful corporate comms business. 

David has also written a number of books on investing, funds, ETFs, and stock picking and is currently a non-executive director on a number of stockmarket-listed funds including Gresham House Energy Storage and the Aurora Investment Trust. 

In what remains of his spare time he is a presiding justice on the Southampton magistrates bench.