Fidelity Launches AAA CLO ETF: High-Rated Loan Investment

Fidelity Investments is expanding its offerings in the complex and growing market for collateralized loan obligations (CLOs) with the launch of two new actively managed exchange-traded funds (ETFs). The funds, February 12, 2026, aim to provide investors with diversified access to this traditionally less accessible asset class.

Navigating the CLO Landscape

The new ETFs are the Fidelity AAA CLO ETF (FAAA) and the Fidelity CLO ETF (FCLO). FAAA is designed for investors seeking the highest credit quality, with a strategy focused on CLOs rated AAA – the top tier of investment grade. It will normally invest at least 80% of its assets in these AAA-rated securities. FCLO, takes on more credit risk, investing primarily in CLOs rated from BBB+ down to B-, offering potentially higher yields but with increased volatility.

CLOs are complex financial instruments created by bundling together a portfolio of corporate loans. These loans are then divided into tranches, each with a different level of risk and return. The AAA tranche is considered the safest, receiving payments first and therefore carrying the lowest yield. Lower-rated tranches offer higher potential returns but are more vulnerable to losses if borrowers default on their loans.

A Growing Market and Investor Appetite

The launch of these ETFs reflects a growing investor appetite for CLOs, a market that has expanded significantly in recent years. While previously a niche area, CLO ETFs have seen substantial asset growth as investors seek yield and diversification opportunities. Fidelity’s entry into the space adds to a competitive landscape, offering investors more choices and potentially driving down costs.

According to Fidelity, its exchange-traded lineup now consists of 77 ETFs and exchange-traded products (ETPs) with $154 billion in assets under management. The company highlighted its deep credit research capabilities and its long-standing experience in the CLO market, both as an issuer and an investor, as key strengths supporting this expansion.

Fidelity’s Strategy and Competitive Positioning

Harley Lank, head of High Income & Alternatives at Fidelity Investments, stated, Investors are looking for new return and diversification opportunities, and we’re committed to meeting client needs by developing high-quality solutions like the new CLO ETFs. This sentiment underscores the broader trend of investors seeking alternatives to traditional fixed-income investments in a low-interest-rate environment.

The competitively priced nature of the new ETFs, with fees waived for the first 12 months, is a strategic move by Fidelity to attract investors and gain market share. This fee waiver is designed to allow investors to experience the potential benefits of CLO exposure without the immediate impact of management fees.

Understanding the Appeal of CLOs

CLOs can offer attractive yields compared to other fixed-income securities, particularly in the current market environment. However, they are not without risks. The performance of CLOs is directly tied to the creditworthiness of the underlying borrowers. Economic downturns or industry-specific challenges can lead to increased defaults, impacting the value of the CLO tranches.

The structure of CLOs, with their multiple tranches, provides a degree of protection for higher-rated investors. Losses are absorbed by the lower-rated tranches first, shielding the AAA tranche from immediate impact. However, even the AAA tranche is not entirely risk-free, as severe economic shocks can still lead to downgrades and losses.

Implications for Advisors and Investors

The launch of FAAA and FCLO provides financial advisors with additional tools to tailor client portfolios to specific risk tolerances and income objectives. FAAA offers a conservative approach for investors prioritizing capital preservation, while FCLO provides a higher-risk, higher-reward option for those seeking greater income potential.

Fidelity’s experience in the CLO market, with over two decades of involvement and a $2.3 trillion fixed income business, positions it as a credible player in this space. The portfolio management team for FAAA includes Dave DeBiase, Rob Galusza, and John Mistovich, who collectively bring more than 65 years of experience at Fidelity Investments.

The availability of these ETFs through Fidelity’s online brokerage platforms, commission-free for individual investors and financial advisors, further enhances their accessibility and appeal. This move aligns with the broader industry trend of reducing trading costs and making investment products more readily available to a wider range of investors.

The growing popularity of CLO ETFs suggests a continued demand for alternative fixed-income strategies. As investors navigate a complex and evolving market landscape, CLOs may play an increasingly important role in diversified portfolios.