Accessing CLOs notes with UCITS ETFs

Title: Accessing CLOs notes with UCITS ETFs

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Marketing Communication for professional investors only.

Investment risks

For complete information on risks, refer to the legal documents.

The value of investments, and any income from them, will fluctuate. This may partly be the result of changes in exchange rates. Investors may not get back the full amount invested.

The creditworthiness of the debt the Fund is exposed to may weaken and result in fluctuations in the value of the Fund. There is no guarantee the issuers of debt will repay the interest and capital on the redemption date. The risk is higher when the Fund is exposed to high yield debt securities.

Changes in interest rates will result in fluctuations in the value of the Fund.

It may be difficult for the Fund to buy or sell certain instruments in stressed market conditions. Consequently, the price obtained when selling such instruments may be lower than under normal market conditions. Highly rated tranches of CLO Debt Securities may be downgraded, and in stressed market environments even highly rated tranches of CLO Debt Securities may experience losses due to defaults in the underlying loan collateral, the disappearance of the subordinated/equity tranches, market anticipation of defaults, as well as negative market sentiment with respect to CLO securities as an asset class.

Hi, my name is Kevin Petrovcik and I'm a client portfolio manager and part of Invesco's 48 billion private credit platform. Today I will be discussing how investors can access CLO notes in exchange traded funds, or ETFs.

Historically, CLO notes were only available to large institutional investors either on an individual CUSIP level or through separate accounts. In fact, Invesco has been managing CLO note strategies for our institutional clients in separate account format for over 15 years. New regulatory developments mean that Invesco is now able to offer CLO note investments through UCITS ETFs. The goal of this discussion today is to provide you with, one, an overview of how you can access these exciting investments. For example, we now have two UCITS ETFs, one focused on European CLO notes, and one focused on USCLO notes, and two, the benefit of the ETF structure, which can offer better access to a broader base of investors with the transparent secondary market to provide additional layers of liquidity, especially in times of market stress. But first, let's focus on what differentiates Invesco's approach to managing CLO notes for ETFs.

The UCITS ETF products are actively managed ETFs where Invesco leverages our private credit teams 35 years of experience in private credit markets.

First, as one of the world's largest loan managers with over $48 billion in private credit, we are positioned to understand the underlying collateral. Because our CLO note investment team sits alongside our senior loan team, we can incorporate both our knowledge of CLO managers along with the proprietary view on the underlying in order to screen out the lower quality segment of the market.

Second, the largest subsector of Invesco's private credit platform is managing over 16 billion of underlying CLOs.

Collateralised Loan Obligations (CLOs)

Managing for 20+ yrs. / ~$16bn AUM

Source: Invesco As of December 31, 2024. Diversification does not guarantee a profit or eliminate the risk of loss. Not all products are available in all regions. Please consult your local Invesco representative for more information. Platform assets reporting in $= USD. Figures may not sum due to rounding.

This places Invesco as one of the top CLO managers in Europe and the US. Our CLO portfolio managers are the same investors who are making decisions on which note to invest in. Not only do we understand the nuances and features to look at when investing in CLOs, but Invesco has well-established relationships with all of the underwriters in order to get good allocations on attractive new issue and secondary opportunities.

Lastly, Invesco has been investing in CLO notes for the past 25 years.

CLO Notes

Investing for 20+ yrs. / ~$2bn AUM

Source: Invesco As of December 31, 2024. Diversification does not guarantee a profit or eliminate the risk of loss. Not all products are available in all regions. Please consult your local Invesco representative for more information. Platform assets reporting in $= USD. Figures may not sum due to rounding.

We manage almost $2 billion of CLO notes for institutional investors globally, including separate institutional accounts spanning over the last 15 years. We've launched a similar US-based CLO note ETF product in the US in 2022.

Let's now shift our focus to accessing rated CLO notes. In October 2024, the Central Bank of Ireland announced new guidelines, which enabled us to broaden the opportunity for investors to access this exciting area of the market. We now have two new AAA-rated CLO note usage ETFs, one which focuses on European AAA-rated CLO notes.

The other one, focus on US AAA-rated CLO notes. These products offer exposure to AAA-rated CLOs. Both funds have the maximum exposure to AA-rated CLO notes of 20%, but we would anticipate non-AAA to be less than that. Both ETFs are singular currency focus funds, offering both interest accumulating and interest distributing share classes, attractive yield take up relative to other short duration AAA-rated investments. No AAA or AA-rated CLO O notes has experienced a default or credit impairment.

Principal Impairment Comparison

Source:  US- Citi Research, Moody’s as of 12/31/2022 (most recent data available) Euro - S&P Global Ratings Credit Research & Insights & S&P Global Market Intelligence CreditPro as of 9/30/2024. Past performance does not predict future returns.

Low duration makes CLOs insensitive to changes in shifts in interest rates.

Price volatility of AAA CLO notes vs. comparables

The floating-rate feature of CLO debt has helped protect investors against interest-rate volatility and duration risk, reducing price volatility compared to other asset classes

USD Fixed Income

EUR Fixed Income

Source: Bloomberg, Barclays & JP Morgan Research as of US as of December 31, 2024, Euro as of June 30, 2024. JP Morgan US/Euro CLOIE AAA index. Bloomberg U.S. Aggregate Index, 1-3 Year Corporate Index , Aaa Corporate Index, CMBS Investment Grade: Aaa. Bloomberg Euro-Aggregate Index, Euro-Aggregate: Securitized -- Aaa Index, Euro-Aggregate: Corporate -- 1-3 Year Index, Euro-Aggregate: Corporate -- Aaa Index. An investment cannot be made in an index. Past performance is not a guarantee of future results.

So while the structure of CLOs may be more complex, the risk characteristics are simpler as they're a pure credit spread product. And finally, access. The ETF can facilitate broad participation in a novel asset class that as an underlying market of meaningful size.

The usage framework is globally recognized and provides rigorous investor protections and disclosures. The secondary market through ETF trading provides an additional layers of liquidity for investors, which are especially relevant in times of market stress. When considering where CLOs fit in a portfolio versus broader fixed income asset classes and short duration fixed income, it's beneficial to know that CLOs offer one of the highest yields in the investment grade space with low duration.

YTW & Duration Comparison – December 2024

Source:  Yield represented by Yield to Worst (YTW). US CLO AAA Notes represented by J.P. Morgan CLOIE AAA Index, AAA US Corporates by Bloomberg U.S. Aaa Corporate Index, AAA US ABS by Bloomberg US Agg. ABS AAA Index, Bloomberg US Aggregate Bond Index by US Agg, 1-3 Yr Treasuries by U.S. Treasury: 1-3 Year Index and 1-3 year U.S. Corp by component of the US Agg index. Euro CLO AAA Notes represented by represented by J.P. Morgan Euro CLOIE Index. Euro Agg 1-3yr by Euro-Aggregate: 1-3 Year Index. Euro Securitized AAA by Bloomberg Euro-Aggregate: Securitized  - AAA Index. Euro Agg by Bloomberg Euro-Aggregate Index. Euro Corp IG by Bloomberg Euro-Aggregate: Corporate Index. Euro Corp AAA by Bloomberg Euro-Aggregate Corporate Aaa Index and Euro Agg Treasury by Euro-Aggregate: Treasury Index. All Euro indices are hedged to Euro. An investment cannot be made directly in an index. Past performance does not predict future returns. All data as of December 31, 2024.

This means minimal interest rate risk, and CLOs can potentially be a source of stable and consistent income during times of market uncertainty and market cycles.

In summary, Invesco's time-tested investment process and experienced team can work through all the nuances of this asset class and overall work to target high levels of risk adjusted return. For more information about investing, please contact your local Invesco representative.

[Disclosures]

Footnotes

All data as of 31 December 2024 Invesco Senior Secured Management, Inc. unless otherwise noted.

Views and opinions are based on current market conditions and are subject to change.

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Views and opinions are based on current market conditions and are subject to change.

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UCITS ETF’s units / shares purchased on the secondary market cannot usually be sold directly back to UCITS ETF. Investors must buy and sell units / shares on a secondary market with the assistance of an intermediary (e.g. a stockbroker) and may incur fees for doing so. In addition, investors may pay more than the current net asset value when buying units / shares and may receive less than the current net asset value when selling them.

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Issued by Invesco Investment Management Limited, Ground Floor, 2 Cumberland Place, Fenian Street, Dublin 2, Ireland, regulated by the Central Bank of Ireland. Belgium: This product is offered in Belgium under the Public Offer Exemption. This material is intended only for professional investors and may not be used for any other purpose nor passed on to any other investor in Belgium. Switzerland: Issued by Invesco Asset Management (Schweiz) AG, Talacker 34, 8001 Zurich, Switzerland. The representative and paying agent in Switzerland is BNP PARIBAS, Paris, Zurich Branch, Selnaustrasse 16 8002 Zürich. The Prospectus, Key Information Document, financial reports and articles of incorporation may be obtained free of charge from the Representative. The ETFs are domiciled in Ireland. Germany: German investors may obtain the offering documents free of charge in paper or electronic form from the issuer or from the German information agent (Marcard, Stein & Co AG, Ballindamm 36, 20095 Hamburg, Germany). Italy: The publication of the supplement in Italy does not imply any judgment by CONSOB on an investment in a product. The list of products listed in Italy, and the offering documents for and the supplement of each product are available: (i) at etf.invesco.com (along with the audited annual report and the unaudited half-year reports); and (ii) on the website of the Italian Stock Exchange borsaitaliana.it.

EMEA4352590/2025