Over the last 12 months, CLO equity has faced a particularly challenging period relative to other asset classes. Outside of the broad COVID-19 market downturn in 2020, this stretch stands out as one of the more difficult one-year periods the asset class has experienced since performance tracking began. According to Citigroup CLO research, the CLO equity asset class is down approximately 33% over the last year. Following a drawdown of this magnitude, it is natural for investor confidence to be tested.
Drops this far and this fast typically prompt investors, ourselves included, to step back and reassess their exposure and underlying conviction.
Reevaluation is the right instinct.
The key challenge is that this reassessment is occurring in the immediate aftermath of an unusually weak period, when sentiment is under the greatest strain and short-term performance can disproportionately influence perceptions.