Invesco Expands European CLO ETF Suite with New USD-Hedged Share Class

Dec 19, 2025

Minute Read

Invesco has listed a new share class of its European collateralised loan obligation (CLO) ETF, providing investors with a currency-hedged option for accessing this asset class.

By ETFWorld.co.uk

Matt Tagliani, Head of EMEA ETF Product at Invesco

The Invesco EUR AAA CLO UCITS ETF USD Hdg Acc began trading today.

The fund is an actively managed ETF that aims to provide consistent income and capital preservation. Its primary objective is to invest in AAA-rated tranches of euro-denominated floating rate debt securities issued by CLOs.

ETF Core Details:

ISIN: IE0005KVDHL8
TER: 0.250%
Investment Focus: A minimum of 80% of holdings will be in AAA-rated CLO debt securities, with up to 20% permitted in lower-rated, investment-grade tranches (predominantly AA-rated).
Currency Hedging: This share class specifically enters into foreign exchange transactions to minimise exposure to fluctuations between the euro and the US dollar.
Reference Index: The fund may use the J.P. Morgan European Collateralized Loan Obligation AAA-only Index for comparison but is not constrained by it.

This launch adds to an existing ETF from Invesco tracking the same strategy.

Market Context: The Case for European CLOs
The launch occurs as the European CLO market gains momentum, partly driven by recent ETF launches that have improved access for investors. The value of outstanding euro CLOs has more than doubled since 2017 to approximately $250 billion.

For investors, AAA-rated CLO tranches are positioned as a tool for enhancing portfolio yield without extending duration or significantly lowering credit quality. Analysis indicates that the J.P. Morgan AAA-rated Euro CLO index has offered a higher yield compared to similarly rated short-dated corporate bonds.

A key structural feature is the “cashflow waterfall.” In a CLO, distributions from the underlying pool of leveraged loans are paid first to the highest-rated (AAA) debt tranche. This seniority, coupled with historical data showing no defaults on European CLOs rated single-A or above, underpins the credit rating.

Investment Characteristics and Use Cases
The asset class presents specific characteristics for portfolio construction:

Yield vs. Duration: AAA CLOs are floating rate instruments, resulting in short duration. This means they have historically been less sensitive to interest rate changes than fixed-rate bonds, while still offering a yield pickup over cash and short-term credit.
Portfolio Role: ETFs of this type are cited for potential use in liquidity management sleeves, offering a yield premium over overnight rates while maintaining a high credit quality. They may also be used to reduce overall portfolio volatility due to their short duration.
Correlation Profile: The return profile of AAA CLOs has shown periods of correlation with risk assets but has maintained relatively low correlation with core investment-grade bond aggregates.

Practical Considerations for Investors
The new ETF is structured as a UCITS fund, providing a regulated framework for European investors. The 0.250% TER is in line with the cost of the existing unhedged share class.

As an actively managed fund, performance will depend on the manager’s security selection within the stated AAA/AA rating parameters. The USD hedging strategy aims to remove currency risk, isolating the investment to the credit and yield characteristics of the underlying euro CLO assets.

The European CLO market, while growing, is less established than its US counterpart. The regulatory landscape for institutional investors, such as insurers, has been evolving to potentially reduce capital charges for securitised products, which may further influence market development.