Investors should “lean into” collateralised loan obligations (CLOs), as floating-rate CLOs continue to outperform other assets in global fixed income markets, according to Janus Henderson.
In a 2026 mid-year check-in, John Kerschner, global head of securitised products at Janus Henderson, said that recent CLO sector outperformance is “no outlier”.
Read more: European CLO issuance soars as direct lending cools
He noted that BBB CLOs have not only been the best-performing fixed income sector year-to-date in 2026, but also over the preceding one, three, five and 10-year periods.
US BBB CLOs delivered a year-to-date total return of 2.7 per cent, while US AAA CLOs generated a 2.4 per cent total return.
Euro AAA CLOs returned 1.7 per cent year-to-date, just behind emerging market debt and global high yield.
Despite their “far higher credit quality and very low volatility profile”, both Euro and US AAA CLOs have also outperformed most other indices on a five and 10-year basis, Kerschner noted.
He believes that floating-rate exposure is “essential” to navigating the post zero-interest-rate-policy global economy and has a preference for higher-quality assets.
Kerschner explained that CLOs are the best way to gain floating-rate exposure on the basis they offer credit enhancement over loans and “a mechanism for investors to select their desired level of risk”.
Read more: Macquarie hits $1.6bn for CLO platform
The belief that interest rates will fall to zero and remain there would be one reason for having no allocation to high-quality floating-rate debt.
However, Kerschner acknowledged that for that to happen, inflation would need to “virtually evaporate”.
Considering the “inflationary underpinnings” of a strong labour market, robust economic growth, geopolitical tensions, higher oil prices, AI-driven shortages, large fiscal deficits, and deglobalisation, he said this “appears very unlikely”.
“Skeptics may argue that the rise in interest rates since 2022 has been a fluke tailwind for floating-rate assets – as if CLOs and other floating-rate bonds got lucky and ‘won the interest rate lottery’ – and that it won’t happen again,” said Kerschner.
“Ironically, we concur, at least in part: It is because interest rates have risen that CLOs have done well (also because credit spreads have tightened), but we don’t see the rise in rates as an isolated event. Rather, we think all signs point to the regime of higher rates being here to stay. And that’s why we believe investors should consider leaning into CLOs instead of writing off their outperformance as a one-time fluke of Covid-induced, outsized inflation.”
Read more: Bridgepoint prices €405m CLO
