CLO Background and Characteristics 

Collateralized loan obligations (CLOs) have been around for nearly three decades, but until recently, this asset class has been largely accessible only to large and sophisticated institutional investors. The growth of ETFs has made it easier for both retail and institutional investors to gain access to this sector.

As a refresher, a CLO is an actively managed pool of diversified bank loans, typically comprising about 150-200 senior secured, broadly syndicated loans issued by BB- and B-rated companies. The cash flows from those loans are pooled together and pay principal and interest on the CLO tranches based on a certain priority, with the senior tranche―or AAA-rated tranche―receiving principal payments first.

Important Risks: Investing involves risk, including the possible loss of principal. • Fixed-income security risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall. • Loans can be difficult to value and less liquid than other types of debt instrument; they are also subject to nonpayment, collateral, bankruptcy, default, extension, prepayment and insolvency risks. • Collateralized loan obligations (CLOs) are associated with a number of risks including liquidity, interest-rate, credit, event, and call risk as well as the risk of default of the underlying assets. CLOs are managed by investment advisers who may have conflicts of interest or limited operating histories. Newly issued CLOS purchased in the primary market typically experience delayed or extended settlement periods. • Diversification does not ensure a profit or protect against a loss in a declining market.

The views expressed herein are those of Wellington Management, are for informational purposes only, and are subject to change based on prevailing market, economic, and other conditions. The views expressed may not reflect the opinions of Hartford Funds or any other sub-adviser to our funds. They should not be construed as research or investment advice nor should they be considered an offer or solicitation to buy or sell any security. This information is current at the time of writing and may not be reproduced or distributed in whole or in part, for any purpose, without the express written consent of Wellington Management or Hartford Funds.