CLO spreads widened early in the quarter after “Liberation Day” but ended the quarter tighter than where they started. This tightening marked the beginning of a sustained rally across risk assets, setting the stage for stronger CLO performance, especially in the bottom tranches. During the quarter, CLOI slightly underperformed its benchmark by 13 basis points (bps) (1.57% vs 1.70%) and was approximately in line on a year-to-date (YTD) basis (2.76% vs 2.81%). In the second quarter, the VanEck CLO ETF (CLOI) changed its primary performance benchmark to the J.P. Morgan CLO IG Index from the J.P. Morgan CLO Index, which we believe is a better reflection of its investment grade strategy. The VanEck AA-BB CLO ETF (CLOB) underperformed its benchmark in the quarter, the J.P. Morgan CLOIE Balanced Mezzanine Index, by 26bps (2.13% vs 2.39%), and slightly underperformed YTD by 15bps. As markets weigh the path of monetary policy against ongoing trade uncertainty and evolving credit conditions, CLO valuations and investor sentiment are likely to be shaped by shifting risk dynamics. We believe returns will be primarily driven by yield going forward, and we think CLOs have attractive total return potential relative to other equivalently rated fixed income assets under these conditions. However, given tight valuations we currently maintain an up-in-quality bias, focusing purchases higher in the capital stack where there is value and select short spread-duration purchases lower in the capital stack. With volatility expected to persist, security selection and a nimble approach will be critical in the second half of the year.

CLOI Average Annual Total Returns^* (%)

^* Returns less than one year are not annualized. Effective May 1, 2025, the J.P. Morgan CLO IG Index replaced the J.P. Collateralized Loan Obligation Index as the Fund's benchmark

The performance data quoted represents past performance. Past performance is not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Please call 800.826.2333 or visit vaneck.com for performance current to the most recent month ended.

CLOI’s gross expense ratio is 0.40% and the total expense ratio is 0.40%. Van Eck Associates Corporation (the “Adviser”) will pay all expenses of the Fund, except for the fee payment under the investment management agreement, acquired fund fees and expenses, interest expense, offering costs, trading expenses, taxes and extraordinary expenses. Notwithstanding the foregoing, the Adviser has agreed to pay the offering costs until at least May 1, 2025. “Other Expenses” have been restated to reflect current fees.

CLOB Average Annual Total Returns^* (%)

^* Returns less than one year are not annualized. Effective May 1, 2025, the J.P. Morgan CLO IG Index replaced the J.P. Collateralized Loan Obligation Index as the Fund's benchmark

The performance data quoted represents past performance. Past performance is not a guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Performance may be lower or higher than performance data quoted. Please call 800.826.2333 or visit vaneck.com for performance current to the most recent month ended.

CLOB’s gross expense ratio is 0.45% and the total expense ratio is 0.45%. Van Eck Associates Corporation (the “Adviser”) will pay all expenses of the Fund, except for the fee payment under the investment management agreement, acquired fund fees and expenses, interest expense, offering costs, trading expenses, taxes and extraordinary expenses. Notwithstanding the foregoing, the Adviser has agreed to pay the offering costs until at least May 1, 2026. “Other Expenses” have been restated to reflect current fees.

Market Update

June proved to be a strong month for risk assets. CLOs benefited from a broader market rally and generated positive returns across the capital stack. Improved investor sentiment was supported by the Federal Reserve's (the Fed’s) dovish rhetoric, easing geopolitical tensions, and positive developments on the trade tariff front. The Fed kept policy rates unchanged, as anticipated, but markets expect potential easing later in the year, with OIS forwards pricing in ~65bps of cuts by the end of 2025. The asset class also benefitted from continued strong investor inflows, as CLO ETFs saw $1.2bn of inflows following $1bn of inflows in May. In June, 5- and 10-year Treasury rates traded 16 and 17bps lower, respectively.

Floating rate CLOs and bank loans underperformed high yield bonds given the rally in intermediate-term Treasury rates.

Source: JP Morgan and ICE Data Indices as of 6/30/2025. CLOs represented by J.P. Morgan Collateralized Loan Obligation Index, CLOs IG represented by J.P. Morgan Collateralized Loan Obligation IG Index, CLOs Mezz represented by J.P. Morgan Collateralized Loan Obligation Balanced Mezzanine Index, AAA Rated CLOs represented by J.P. Morgan CLO AAA Index, AA Rated CLOs represented by J.P. Morgan CLO AA Index, A Rated CLOs represented by J.P. Morgan CLO A Index, BBB Rated CLOs represented by J.P. Morgan CLO BBB Index, BB Rated CLOs represented by J.P. Morgan CLO BB Index, US Agg is represented by the ICE BofA US Broad Market, Investment Grade Corporates represented by ICE BofA US Corporate Index, High Yield Bonds represented by ICE BofA US High Yield Index and Leveraged Loans represented by JP Morgan Leveraged Loan Index.

CLO new issue supply decreased month-over-month, with $15.4bn pricing in June, compared to $20.5bn in May. Year-to-date new issue volume of $96.4bn was just slightly behind last year’s record-setting pace. Refinancing and reset activity increased materially during the month, following depressed levels in April and May, with $29.0bn pricing, after $14.3bn in May. Total issuance (including refinancing/reset transactions) of $255.6bn is the largest volume to start a year on record. Year-to-date refinancing/reset activity of $159.2bn was at a record pace following last year’s record volume.

In the secondary market, TRACE supply decreased month-over-month, with $17.9bn of volume in June compared to $25.7bn in May. Investment grade volumes decreased to $13.5bn from $19.0bn, while below investment grade volumes decreased to $4.4bn from $6.7bn. Meanwhile, total BWIC volume decreased to $3.6bn from $5.9bn in May.

In June, gross institutional loan issuance was $44.1bn, following $28.0bn in May. Institutional loan supply increased across all types of issuance, albeit from low levels. Opportunistic transactions including repricings picked up as the broad rally for loans expanded the share of the loan market trading at par or above, while M&A and LBO activity also increased. Demand for loans slowed in June versus the prior month but still outpaced net loan supply. Retail loan funds saw net inflows of $0.3bn, versus $1.2bn in May.

The trailing twelve-month default rate within the Morningstar US Leveraged Loan Index increased 37bp month-over-month to 1.11%. As measured by JP Morgan, the default rate including distressed exchanges, increased 17bp to 3.79%. Activity has been elevated as borrowers with unsustainable capital structures endeavored to manage their liabilities and avoid the bankruptcy process through liability management exercises, keeping the “official” default rate lower than otherwise. We anticipate the default rate to remain below historical averages in the near-term for the leveraged loan market as a result. None-the-less, our expectations are that defaults, including distressed exchanges, will remain above the long-term historical average of ~3%, with the path for the default rate uncertain given rapidly changing trade policy.

US CLO secondary spreads tightened across most of the capital stack in the quarter. The AAA tranche tightened 17bp, the AA tranche tightened 37bp; single-A’s, 33bp; BBB’s, 11bp; BB’s, 64bp; and single-B’s widened 11bp. Meanwhile, Investment Grade Corporate tightened by 11bp, High Yield Bonds 59bp, and Leveraged Loans 49bp.

Portfolio Strategy

The borrowing rate for leveraged loan companies remains high following rate increases from central banks in 2022 and 2023. While the Fed initiated a series of rate cuts starting in September 2024, inflation remains above the Fed’s target and the labor market remains robust. The Fed has paused further action as they await more information on the path of inflation and employment, which may result from the implementation of tariffs and more robust immigration policies. The market is expecting two rate cuts in 2025. However, the Fed has signaled a wait and see approach leaving the path of policy changes an outstanding question. The Fed remains in a very tricky position as US trade policy changes rapidly and hard economic data post the imposition of tariffs has yet to come through. Cuts, should they come, will ultimately provide relief for more stressed borrowers, but the path and timing of more cuts is highly uncertain.

The market has stabilized since the tariff escalation and de-escalation back and forth in April, with spreads tightening materially off the wides and prices rallying back to levels seen in mid-March, where most of the market was pricing above par. Notwithstanding the more recent de-escalation of tensions, given signs of economic weakening in the US and the continued prospects of a global trade war, we prefer tranche purchases higher in the capital stack, with selective purchases of shorter spread-duration assets for lower rated credits. We believe current AAA spreads are tight, so given our up in quality bias, we believe adding AA and A rated securities make the most sense. We expect there to be additional bouts of volatility throughout the year and would like to maintain the ability to shift further into lower rated tranches during future periods of market weakness. Given the rally over the last six weeks, buying in the secondary market has become less attractive, and we now prefer purchases in the primary market, even when taking an increase in spread duration into account.

CLOI Total Return and Credit Allocation

Source: FactSet, J.P. Morgan, VanEck, as of June 30, 2025. Index performance is not representative of Fund performance. It is not possible to invest directly in an index.

CLOB Total Return and Credit Allocation

Source: FactSet, J.P. Morgan, VanEck, as of June 30, 2025. Index performance is not representative of Fund performance. It is not possible to invest directly in an index.

Outlook

On the policy front, the post-April 9th trend has continued into June with a large majority of administration policy announcements viewed favorably from a macro perspective, and the recession fears of early April continue to fade. The market is much more focused on sectors and issuers that will be on the wrong side of policy and fiscal changes than the macroeconomic outlook. Fundamentals for leveraged finance issuers remain robust. More companies are beating than missing earnings estimates, with help from a supportive pre-tariff stocking trend. However, more companies are guiding down than guiding up, which is consistent with heightened trade uncertainty.

While the team does not expect significant spread compression from here, it believes returns will be driven by yield going forward, and we think CLOs have attractive total return potential relative to other equivalently rated fixed income assets under these conditions. That said, the roller coaster trade dynamics and other currents will keep markets fluid, and we expect to see both positive shocks, in the form of deal announcements or teases, and negative ones, such as more aggressive policies or deal disappointments. Despite likely headline-driven volatility both ways in the coming months, we believe the risk is balanced. However, tight valuations tilt incrementally toward a more defensive portfolio bias.

In a world where interest rates will be higher for longer, floating rate assets continue to be attractive. We continue to see spreads and yields attractive under most market scenarios over the next twelve months. That said, we believe having a nimble approach is of paramount importance given the pace of news flow which is rapidly shifting consumer and business sentiment. In addition, a robust bottoms-up approach to security selection remains key given the significant tail risks to the fundamental backdrop and a market bifurcated between vintages and, relatedly, between deals in and out of their reinvestment periods. Given the dispersion seen in the loan market, certain CLO portfolios holding weaker credits may eventually experience impairments to the lowest rated debt tranches. As a result, vintage, portfolio, and manager selection remains key.

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