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"Before they invest any money in a CLO, managers Jeffery Elswick and Tim Tucker of Frost Credit want to see if there’s any “skin in the game.”

That means insider ownership by the CLO’s issuers, so they’re taking on more credit risk than Frost Credit. “You have to make sure the issuers have skin in the game, so they lose a dollar before we lose a dollar,” Elswick says.

Much like collateralized mortgage debt, which proved disastrous in the 2008-2009 crash, CLOs are bundles of loans, albeit corporate instead of mortgage ones that are issued by large institutional money managers such as Carlyle Group or Golub Capital. As diverse credit pools, they can be opaque and difficult to analyze.

Frost Credit is one of the few bond funds to take full advantage of CLOs in this risk-conscious manner, and it’s paid off. In the past five years, it's investor shares have beaten 91% of its peers in Morningstar’s Multisector Bond fund category with a 4.37% annualized return versus the category’s 2.43%. In the past 10 years, it’s beaten 97%. The $332 million investor share class fund’s 0.98% expense ratio is higher than its category peers’ 0.81% average, but its specialized nature and superior performance justify that fee."

Excerpted from Barron's, to read full article, click here.

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The Frost mutual funds are distributed by SEI Investments Distribution Co., which is not affiliated with the Advisor or its affiliates.As of 8/31/24, FCFAX was in 18th percentile rated against 358 Multisector Bond Funds over a one-year period, in the 9th percentile rated against 270 over a five-year period and in the 3rd percentile rated against 188 over a ten-year period. © 2024 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.