I was looking at a list of some short term bond exchange traded funds (ETF)s and I noticed that several were named “AAA CLO.” I got a big laugh out of this name, because I think is an oxymoron. AAA is the rating, meaning the “bonds” that the ETF holds are extremely safe…very little chance of defaulting. CLO means collateralized loan obligation. Here is one definition of a CLO: “A CLO is a single security backed by a pool of debt, which is typically composed of 150 to 300 leveraged loans. The loans are usually first-lien senior-secured bank loans to companies with below-investment-grade credit ratings.” AAA and “below investment grade” do not mesh with each other. For anyone that isn’t aware of what happened in 2008, you can just watch the movie “The Big Short” or read the book.
Another term to consider is “ultrashort.” What ultrashort might mean to one person might not be the same as what it means to the ETF managers. (I’m tempted, but I’ll refrain from making any crude jokes here).
As the poster of the list says, people should do their due diligence before investing in anything (and don’t be fooled by a name, and don’t be fooled by a rating).
What I’ve been doing lately is buying treasury bills or short term certificates of deposits from FDIC insured banks, and I’m happy with my 5%+ returns.
And since its Memorial Day week-end, a big thank you to the soldiers and sailors and airmen (and women) that serve as honor guards at veteran cemetery services. Although you never knew the deceased and you do not know any of the survivors…believe me, you bring a lot of comfort and honor to both the deceased and the survivors.
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