CLO Special Topics: June Performance Update: Continued software weakness and trading returns

Research evidence excerpt

CLO Special Topics: June Performance Update: Continued software weakness and trading returns

ains from trading

overall, and we detail outperforming managers in recent trading. Across sectors, recent

software purchases have been negative for portfolio market value whereas packaging

purchases have outperformed. CLO software holdings were unchanged in June reports,

although there is significant dispersion across managers, with both 2%+ net increases

and decreases in manager software shares over the past three months. Managers that

decreased software exposure significantly in recent months have tended to rotate into the

media sector, particularly Warner Brothers’ $13bn refinancing TL.

Software loan returns: underperformance in June with continued dispersion across

subsectors

Software loan returns were mostly in line with overall averages in April and May, but have

underperformed month-to-date. With a -1.8% market value return for the software sector

in June, YTD market value returns now total -9.6%, a new low.

As discussed in our priorreport, perceived risks of AI disruption vary significantly across

software subsectors, and this has partly driven returns at the subsector level in recent

months:

• Subsectors that saw broad-based weakness in Q1 such as data

management/analytics and IT management have continued to underperform since

then, with YTD total returns 8-13 points below the average across all software & IT

services loans. The database software subsector slightly outperformed in Q1, but has

since underperformed with -9% total returns in Q2, mostly from Cloudera.

• The cloud infrastructure subsector has continued to sharply outperform, mostly driven

by price gains in Rackspace’s second-out term loan. Having traded as low as $25 in