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00:00We know that the Trump administration wants to get rates down. Whether they succeed. Well, we'll see. Certainly. But how do you see this playing out in terms of demand for these kinds of products when rates do eventually come down? Well, first of all, the path of interest rates, I think, take far longer than most people expect to switch rate, we predict, and it feels like six months to a year, then it happens. However, as we look at floating rate securities, whether it's ultra short world or triple A, the hunt for yield doesn't stop whether rates are at zero or 5%. Everyone is looking for basis points above risk free. So we don't really view this as a replay. We view this as your slow and steady allocation in a portfolio regardless of the rate environment. So it's interesting about these CLO ETFs. They launched amid much skepticism a couple of years ago, and they've held up pretty well. I mean, the flows speak for themselves as to the performance, but you did see some hiccups starting about a month ago. We had all of that market volatility and you saw petro play and some of its peers really gapping out when it comes to its net asset value. You had the share price trading at a discount. Those discounts have since been repaired. But really that was the first real test that a lot of these products have undergone. And there are still concerns out there that you're going to see CLO issuance really drop. The market could freeze. And I'm wondering, you know, what kind of feedback, what kind of concerns are you hearing from your clients and investors? Sure. So we manage 140 billion of securitized assets. 70 billion of that is close. So we've been in the see a little market since 2008. We've managed liquidity through the financial crisis Covid through today. We've seen how these behave. And I'll give you at least what I believe is an interesting stat. If you look at the worst 12 month drawdown of triple A close, it's a -1.6%. Compare that to the AG at 16% drawdown. So while you may have very short periods of a drawdown, they tend to be very limited. Right. So if you look at daily returns. Right. So really narrow the window. 96% of daily returns on a close are positive. Compare that to the AG again, 56%. So it is a drastically different profile than the AG. And to get to your question on silos. If you lump silos as a group, there's a big difference between triple-A, Double-A and as you get the Triple B drastically different. And when you focus on triple-A, if the drama surrounding sort of the questions around silos and how they hold up goes away because triple-A is are very resilient. Who are the buyers who are most interested in these products at a time like this? Well, let's go before ETFs. Before ETFs. This is a $1.3 trillion industry, right? So scratch the ETF label off. It's a huge industry. Before ETFs, it was insurance companies like Prudential Financial and PJM and banks and asset managers. But very pockets bring in an ETF everyone. It has the most incredible Sharpe ratio relative to any other part of the bond market. So bring that in as financial advisors and RDA is look at that they're reassessing the building block approach of their portfolio because of these really interesting stats of triple-A silos that they couldn't access before. So if you look at the waves, its traditional asset managers, financial advisors and areas and we think the next boom is the individual DIY investor. Well, I find that really interesting and a story I had been thinking about writing before all the volatility happened and everything went out the window was that it feels like power is shifting in the CLO market. You've introduced this entirely new buyer to the asset class through the vehicle of ETFs and not necessarily saying that's a bad thing, but you have seen ETFs have an impact on the underlying market. We know that over the past couple of years it's been sort of traced back to some of the spread tightening that you've seen in the underlying securities. And I just wonder how you think about that. Obviously, PJM has a lot of experience in securitized assets, silos being one of them. So silos from from our perspective are a timeless investment. And if you think about the sort of the common building blocks out there, the hunt for yield, most investors are constantly seeking income. The question is, does that income get completely overwhelmed by the risk? Right? So whether it's even in the equity market, you've seen a ton of demand to income equity. Maybe that yield is 8%, let's say, but you're subject to drawdowns that overwhelm an entire year's worth of income. Tripoli clothes offer 150 basis points historically over risk free. But it's doing it in a very risk averse fashion. Now, to your point, if you go down the spectrum, you have about a 2% standard deviation and close. If you're going to triple B, it's four times the level of risk. And you talk about how should advisors think about this? We only have a triple silo ETF and we only hold triple A's in other ETFs, even though they say triple A use their 20% allocation to go outside of triple-A. Right. You do not get compensated well for the risk outside of triple from our side. Well, Matt, one of my questions was going to be, I mean, could you venture down the risk spectrum? We know that there's triple B rated silo ETFs out there. It sounds like you're saying no. So as an asset manager, we hold 70 billion, we hold some sub triple AA, but we do it in a very opportunistic manner. We've thought about it because there's a lot of demand go into the Triple B ETF segment and I've seen a few launch and they immediately gather assets as well. We're going to stay out of that because the yield is really attractive. So think about triple silos at 150 basis points plus over benchmark rates. You get another 150 for triple B, but the drawdown can be north of 10%. The risk return does not make sense for the common investor. So we don't think it belongs as a building block. But we do take advantage of dislocations. As an asset manager, trillion dollar asset manager, we will use it, but just not as an ETF.

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PGIM Investments Head of ETFs on PGIM AAA CLO ETF (PAAA)

PGIM Investments Head of ETFs Matt Collins discusses the PGIM AAA CLO ETF (ticker: PAAA) and says the path of interest rates "take far longer than most people expect," and CLO drawdowns are "limited." He speaks with Scarlet Fu and Katie Greifeld on "ETF IQ." (Source: Bloomberg)

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