Expanding Your Fixed Income Toolkit with Structured Credit
Car loans, credit card balances, even the revenue from a restaurant chain: all of these can be pooled and turned into investments. In this episode, Mark Jarosz joins hosts Zayla Saunders and Hilly Cutler to explain how structured credit brings these together, how CLOs and asset-backed securities differ, and the role both asset classes may play in a diversified fixed income portfolio.
Zayla Saunders is Vice President of ETF Online Distribution at BMO Global Asset Management (BMO GAM), Hilly Cutler is Director of Portfolio Consulting and Senior Portfolio Consultant at BMO GAM, and Mark Jarosz is Head of Credit Alternatives at BMO GAM. This episode was recorded live on November 9, 2026.
Funds mentioned:
BMO AAA CLO ETF (Ticker: ZAAA)
BMO BBB CLO ETF (Ticker: ZBBZ)
BMO Asset-Backed Securities ETF (Ticker: ZABS)
Sources:
Morningstar Direct, BMO Global Asset Management as at November 6, 2026
Morgan Stanley: US CLO TRADING COMMENTARY - Sept 2026
BMO AAA CLO ETF surpasses $1 billion in AUM across all unit classes (ZAAA, ZAAA.F, ZAAA.U). Source: BMO GAM, AUM as at October 5, 2026
ABS: Asset-backed securities
CPI: Consumer Price Index
GFC: Global Financial Crisis
Collateralized Loan Obligation (CLO): A structured financial product where a manager pools together corporate loans and repackages them into tranches, or classes of securities, based on their risk level.
Correlation: A statistical measure of how two securities move in relation to one another. Positive correlation indicates similar movements, up or down together, while negative correlation indicates opposite movements.
Credit rating/risk: An assessment of the creditworthiness of a borrower in general terms or with respect to a particular debt or financial obligation. Credit risk is the risk of default on a debt that may arise from a borrower failing to make required payment.
Duration: A measure of the sensitivity of the price of a fixed income investment to a change in interest rates. Duration is expressed as number of years. The price of a bond with a longer duration would be expected to rise (fall) more than the price of a bond with lower duration when interest rates fall (rise).
Liquidity: The degree to which an asset or security can be quickly bought or sold in the market without affecting the asset’s price. Cash is considered to be the most liquid asset, while things like fine art or rare books would be relatively illiquid.
Sharpe Ratio: A risk-adjusted return measure calculated by using standard deviation and excess return to determine reward per unit of risk. The higher the Sharpe Ratio, the better the portfolio’s historical risk-adjusted performance.
Disclaimers:
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CLOs are floating- or fixed-rate debt securities issued in different tranches, with varying degrees of risk, by trusts or other special purpose vehicles (“CLO Issuers”) and backed by an underlying portfolio consisting primarily of below investment-grade corporate loans. The BMO AAA CLO ETF pursues its investment objective by investing, under normal circumstances, at least 85% of its net assets in CLOs that, at the time of purchase, are rated AAA or the equivalent by a nationally recognized statistical rating organization. The BMO BBB CLO ETF pursues its investment objective by investing, under normal circumstances, at least 75% of its net assets in CLOs that are BBB-rated at the time of purchase.
AAA herein refers to the order of payments, should there be any defaults, and does not represent the ratings of the underlying loans within the CLO. If there are loan defaults or the CLO Issuer’s collateral otherwise underperforms, scheduled payments to senior tranches take precedence over those of mezzanine tranches (a tranche or tranches subordinated to the senior tranche; e.g., AAA tranches are the most senior, while BBB tranches are mezzanine-level), and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity tranches. The riskiest portion is the “Equity” tranche, which bears the first losses and is expected to bear all or the bulk of defaults from the corporate loans held by the CLO Issuer serves to protect the other, more senior tranches from default.
CLOs are floating- or fixed-rate debt securities issued in different tranches, with varying degrees of risk, by trusts or other special purpose vehicles (“CLO Issuers”) and backed by an underlying portfolio consisting primarily of below investment-grade corporate loans. The BMO ETF pursues its investment objective by investing, under normal circumstances, at least 75% of its net assets in BBB CLOs that, at the time of purchase, are rated BBB or the equivalent by a nationally recognized statistical rating organization.
BBB herein refers to the order of payments, should there be any defaults, and does not represent the ratings of the underlying loans within the CLO. If there are loan defaults or the CLO Issuer’s collateral otherwise underperforms, scheduled payments to senior tranches take precedence over those of mezzanine tranches (a tranche or tranches subordinated to the senior tranche), and scheduled payments to mezzanine tranches take precedence over those to subordinated/equity tranches. BBB is a mezzanine tranche. The riskiest portion is the “Equity” tranche, which bears the first losses and is expected to bear all or the bulk of defaults from the corporate loans held by the CLO Issuer serves to protect the other, more senior tranches from default.
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