(HedgeCo.Net) Fidelity’s decision to launch two actively managed CLO exchange-traded funds is more than a new product drop—it’s a signal that private-credit style exposure is continuing to migrate into the liquid, daily-traded ETF wrapper, and that some of the most complex corners of structured credit are becoming mainstream tools for advisors and allocators.
On February 12, 2026, Fidelity announced the launch of Fidelity AAA CLO ETF (FAAA) and Fidelity CLO ETF (FCLO), both listed on Nasdaq and positioned as income-focused, actively managed vehicles that provide access to the collateralized loan obligation market. Fidelity is waiving management fees for the first 12 months; afterward, the gross expense ratio is 0.20% for FAAA and 0.45% for FCLO.
That pricing—particularly FAAA’s post-waiver level—puts Fidelity directly into the heart of the fastest-growing segment of “credit alts,” where demand has been fueled by floating-rate income, the search for diversification versus traditional core bonds, and a broader institutional shift toward private-credit-adjacent exposures.
Why this matters: CLOs are “private credit adjacent,” but the ETF wrapper changes the game
CLOs are securitized vehicles that buy portfolios of leveraged loans—typically senior secured loans made to below-investment-grade companies. The CLO then issues layers (or tranches) of debt and equity, with cash flows paid in a strict priority order: the most senior tranches get paid first and bear losses last; junior tranches get paid later and absorb losses earlier.
Historically, CLO tranches were dominated by institutions—banks, insurers, pensions, and large asset managers—because the structures are complex, the primary market requires specialist access, and the secondary market can be opaque to non-institutional buyers. That’s why CLO ETFs have been such an important innovation: they translate a complicated institutional product into a daily-priced, transparent, exchange-traded vehicle with lower minimums and easier portfolio integration.
In other words: this isn’t just “another ETF.” It’s part of the ongoing retailization of alternative credit—the steady march of private-market-like exposures into public-market packaging.
Fidelity’s two-fund strategy: senior “AAA” exposure vs. a broader, higher-risk stack
Fidelity’s pairing is deliberate:
- FAAA (Fidelity AAA CLO ETF): normally invests at least 80% of assets in AAA-rated CLOs.
- FCLO (Fidelity CLO ETF): invests primarily in CLOs rated from BBB+ down to B- (or equivalent), meaning it reaches further down the capital stack where yields can be higher—but sensitivity to credit stress is also higher.
This matters because “CLO exposure” is not one thing. Senior AAA CLO tranches are often positioned as high-quality, floating-rate income—a way to potentially earn a yield premium over similarly rated traditional credit—while taking structural protections from subordination and deal features.
Lower-rated CLO tranches, by contrast, may behave more like credit beta with leverage to spread widening during downturns. They can offer attractive carry in benign conditions, but they may be more vulnerable to drawdowns if defaults rise or if loan prices gap lower. (That “BBB-to-B” space is where due diligence and manager skill tend to matter most.)
“Not a first-mover-only category”—but Fidelity is entering a market with clear winners
Fidelity is arriving in a CLO ETF arena that already has dominant incumbents and rapidly rising challengers.
According to Reuters, Janus Henderson’s JAAA, launched in late 2020, has grown to $26.85 billion in assets, while BlackRock’s CLOA (an iShares AAA CLO ETF) has about $1.5 billion. Reuters also noted PGIM’s PAAA—launched in 2023—has already drawn about $7.5 billion.
That’s the competitive reality: the category has a flagship, but demand is expanding quickly enough that new entrants can still win—especially if they bring distribution scale, credibility in structured credit, and competitive fees.
And Fidelity is clearly trying to check all three boxes. In the Reuters report, Harley Lank, head of Fidelity’s high income and alternatives division, highlighted Fidelity’s long history as a CLO issuer and investor, framing that experience as an edge in evaluating deal structure and credit exposure.
The bigger trend: inflows, search for floating-rate income, and “credit alts” becoming core tools
What’s driving the moment isn’t only Fidelity. It’s the underlying market dynamic.
Reuters cited estimates that investors have put about $3 billion into CLO ETFs so far in 2026 and $13 billion over the last 12 months—strong flows that signal persistent appetite.
That appetite exists because CLO tranches—especially senior tranches—sit at the intersection of themes that have defined post-2022 fixed income:
- Floating-rate income (helpful when rates are higher and investors are wary of duration risk),
- Credit spread carry (yield pickup versus traditional investment-grade),
- Portfolio diversification (potentially different behavior than core bond indices),
- A public wrapper on a private-credit-adjacent engine (leveraged loans and structured credit).
It’s also happening against a backdrop where the CLO market itself has become a major pillar of U.S. corporate credit—Reuters Breakingviews described CLOs as a roughly $1.4 trillion component of the market—making them increasingly hard for large allocators to ignore.
Why Fidelity’s entry is a “big move” specifically for private credit
Private credit has been one of the defining growth stories in alternatives, but much of that growth has been in drawdown vehicles, interval funds, and semi-liquid structures. CLO ETFs are different: they offer daily liquidity—and that changes buyer behavior.
Here’s the “big move” in plain terms:
- Private credit has long thrived on illiquidity premia and longer lockups.
- CLO ETFs let investors pursue private-credit-like income exposure without giving up liquidity.
- That can expand the buyer base dramatically—especially among RIAs, platforms, and model portfolios that prefer ETFs for implementation.
Fidelity’s scale matters here. When a firm with large retail and advisor distribution infrastructure commits to a category, it often accelerates adoption beyond early specialists. And the firm is clearly positioning these funds not as niche trades, but as portfolio building blocks for income and diversification.
The risk conversation: CLO ETFs aren’t “free yield,” and liquidity is not the same as resilience
As CLO ETFs go mainstream, the market’s biggest mistake would be to treat them as a simple upgrade to short-term bonds.
Yes, AAA CLO exposure typically sits at the top of a heavily structured waterfall—but that doesn’t mean “no risk.” It means risks are different:
- Credit-cycle risk: CLOs ultimately depend on the health of leveraged-loan borrowers. If defaults rise, junior tranches absorb losses first, but stress can still affect valuations across the stack.
- Spread and mark-to-market risk: Even if a tranche doesn’t take credit losses, its market price can fall when spreads widen, especially in risk-off episodes.
- Liquidity risk: CLO tranches can be less liquid than traditional bonds. ETFs provide daily trading, but they still rely on underlying market functioning—particularly during shocks.
- Complexity and dispersion: CLO deal quality can vary meaningfully based on manager skill, collateral selection, and structural protections—one reason active management is heavily marketed in this space.
Notably, Reuters Breakingviews has pointed to concerns that strong demand has compressed returns for traditional CLO buyers (like insurers) and pushed some investors down the ratings spectrum—raising questions about how the next credit downturn might test these structures.
That doesn’t negate the case for CLO ETFs. It just sharpens it: the right way to use these products is as a deliberate sleeve in an income and alternatives allocation, with clear expectations about behavior under stress.
What to watch next: product positioning, portfolio construction, and the “CLO ETF arms race”
Fidelity’s launch lands in a market that is still evolving quickly—new entrants, new tranche exposures, and an increasing split between “AAA-focused” products and “go-lower-for-yield” products.
A few things will likely determine whether Fidelity becomes a top-tier player in this segment:
- How advisors adopt the products
FAAA could slide into the “enhanced floating-rate/ultra-short alternative income” bucket for some models, while FCLO may be treated more like a high-octane credit allocation. - How Fidelity differentiates its process
Fidelity is explicitly leaning on depth in credit research and decades in CLO markets.
In practice, investors will want to see how that shows up in portfolio construction: deal selection, manager selection, vintage exposure, and risk controls. - Where spreads and defaults go from here
If leveraged-loan defaults remain contained and refinancing activity stays healthy, the carry story persists. If credit deteriorates, FCLO-like exposures could face larger drawdowns—and that would be the real educational moment for the broader ETF buyer base.
Bottom line
Fidelity’s launch of FAAA and FCLO is a milestone in the continuing evolution of alternative credit. It reinforces a simple reality: private-credit-adjacent income is no longer confined to private funds. It’s increasingly accessible through liquid, exchange-traded structures—and large firms are now competing aggressively to own that shelf space.
For investors and allocators, the opportunity is clear: potentially attractive floating-rate income and diversification in a familiar wrapper. The responsibility is equally clear: CLO ETFs demand credit-cycle awareness, structure literacy, and realistic expectations about what happens when markets get stressed.