Investment Grade CLOs — A secure pathway to yield and resilience

November 5, 2025

3 minute read

Listen on The Move

Episode Summary

In a world where bonds are breaking and rates refuse to fall, BMO’s Mark Jarosz reveals how CLOs are quietly redefining income investing — offering yield, liquidity, and resilience where few assets can.

In this episode of Insight is Capital, Mark Jarosz, Head of Credit Alternatives at BMO Global Asset Management, joins us to demystify the world of Collateralized Loan Obligations (CLOs) — a sophisticated yet increasingly accessible asset class, now reshaping how investors think about income, risk, and portfolio diversification.

Jarosz explains how CLOs are structured, how they differ from the infamous CDOs of 2008, and why they’ve quietly become a go-to for institutional investors seeking floating-rate income with resilience across market cycles. With the launch of BMO’s CLO ETFs (tickers: ZAAA and ZBBZ), everyday investors now have access to institutional-quality fixed income exposure for the first time in Canada.

From the mechanics of tranche hierarchies and over-collateralization to the yield opportunities in BBB-rated tranches, we cut through the jargon to reveal why CLOs are becoming an essential building block for diversified income portfolios.

3 Key Takeaways

CLOs Are Not CDOs: Jarosz clarifies that CLOs are built on pools of investment grade corporate loans, and are actively managed, transparent, and rigorously rated — with zero defaults at the AAA level over 30 years of history.
Floating-Rate Advantage: In a “higher-for-longer” rate environment, CLOs’ floating-rate structure protects investors from duration risk while providing yield enhancement and resilience during both rising and falling rate cycles.
Democratization of Access: Through BMO’s ZAAA (AAA CLO ETF) and ZBBZ (BBB CLO ETF), Canadian investors can now access institutional-grade credit in a liquid, transparent ETF format — a first in the Canadian market.

Timestamps & Chapters

[00:00] Introduction to Fixed Income Challenges
[01:01] Guest Introduction: Mark Jarosz
[02:30] Mark Jarosz's Career Journey
[04:19] The Impact of the Financial Crisis on Career Development
[05:21] Defining CLOs: Structure and Function
[07:32] The Role of Rating Agencies in CLOs
[08:43] CLOs vs. CDOs: Key Differences
[10:54] Current Market Conditions for CLOs
[11:55] Evaluating CLO Managers
[13:22] Yield Opportunities in CLO Investments
[16:02] Over-Collateralization Explained
[17:50] Exploring BBB Rated CLOs
[19:56] The Role of AAA CLOs in Investment Strategies
[22:50] Institutional Investor Behavior in Volatile Markets
[24:52] Benefits of CLOs in Portfolio Diversification
[26:32] Floating Rate Structure of CLOs
[30:44] Understanding Risks Associated with CLOs
[35:12] Introduction of CLO ETFs for Retail Investors
[38:25] Investor Preferences for Investment Grade Products
[39:58] Monthly Distribution and Yield Pickup
[41:05] Utilizing ETFs for Access to Asset Managers
[42:01] Conclusion

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