High Yields & Capital Preservation? Yes!
High Yield Doesn't Have to Mean High Risk
Investors are often told that high yields come with high risk. While that can certainly be true, investors don't necessarily have to choose between high-yield income and capital preservation.
The key is to look beyond the headline yield and understand what supports the income:
Is it backed by high-quality assets and recurring cash flows?
Where does the security sit in the capital structure?
Today, we highlight two investments that approach this objective in very different ways.
Janus Henderson AAA CLO ETF (JAAA) invests in the highest-quality “AAA”-rated Collateralized Loan Obligations (CLOs) and currently offers a yield of around 5%.
Adamas Trust (ADAM) baby bonds offer high fixed coupons, quarterly interest payments, and relatively near-term call dates and maturities. This gives investors an attractive income stream today while providing a defined timeline for the potential return of principal.
Neither investment is risk-free, but both demonstrate an important principle of income investing: high yield and capital preservation don't necessarily have to be opposing goals.
For the next two weeks you can try High Dividend Opportunities for $34.90 for your first month, regularly $55. That's 30 days inside the model portfolio, the buy and sell alerts, the income tools, and the community, with no long-term commitment. Below is a look at the kind of work members get every week. If it resonates, start your trial at incomemethod.com/hdo before October 7.
JAAA: 5% Yields From AAA-Rated CLOs
JAAA is the biggest CLO ETF in the world with $31.35 billion in net assets.
What are CLOs?
Companies need to borrow to maintain operations, and make investments towards growth and expansion. With U.S. corporate debt exceeding $15 trillion, lenders seek ways to offload risk. This is where Collateralized Loan Obligations enter the picture.
CLO has been around since the late 1980s. A single CLO bundles 150 to 200 corporate loans, and divides the pooled debt into slices called tranches. The tranches are sold off to investors, and there is a priority system to pay these investors. The safer top tranches get paid first, while the riskier equity tranches get paid last. This waterfall model allows investors to choose their risk profile, and when the economy experiences challenges, there are safeguards to direct maximum cash flows to the highest tranches. As a result of tight regulations around CLOs, no “AAA” tranche has ever defaulted in their +40-year history. This includes the DOTCOM bubble, the Great Financial Crisis, and the COVID-19 pandemic.
CLO are inherently floating-rate loans. As a result, “AAA” tranche CLO have very low credit risk, but carry interest-rate risk. With interest rates at elevated levels, AAA CLO tranches are well-positioned to deliver solid yields, and their low credit risk ensures price stability through market conditions. JAAA does not employ any leverage or hedging in its investment strategy, making it a pure-play “AAA” CLO investment. Since its inception in 2021, JAAA has maintained price stability, despite experiencing heavy interest rate volatility and bear market conditions.
JAAA’s recent $0.2077/share monthly dividend annualizes to a ~5% yield at current prices. The Fed’s 25 bps rate hike will provide a tailwind, bumping up future payouts. With JAAA in your portfolio, you can enjoy the safety of cash equivalents, while collecting yields beating CDs and savings accounts.
If Rates Stay Higher
JAAA will almost immediately see its dividends rise proportionally, while its price remains consistent with current levels.
If Rates Drop
JAAA’s distributions will almost immediately reflect the rate cut, resulting in lower payouts. Even in this scenario, the ETF’s price levels are expected to remain steady.
Adamas Trust Baby Bonds: +9% Yields With Defined Maturities
Adamas Trust, Inc. (ADAM), formerly known as New York Mortgage Trust, is an internally managed mREIT that invests in single-family and multi-family residential credit assets.
In recent years, ADAM has pivoted to more conservative strategies, as seen from its 53% portfolio allocation to agency residential Mortgage-Backed Securities, which provide stable earnings and downside protection.
In this timeframe, ADAM’s common stock has rallied, and the mREIT ended Q2 with a book value of $11.05/share (up 1.8% sequentially). The mREIT’s investment portfolio has jumped to $11.7 billion (up from $8.6 billion at the end of Q2 2025), and the company delivered Q2 Adj. EPS of $0.56/share. In short, efforts made by management in the past 18 months have resulted in a much larger portfolio that is also structurally safer than it has ever been historically.
During Q2, ADAM’s Earnings Available for Distribution jumped to $27.1 million (up from $20 million), up 35.5% YoY, and EAD/share was $0.30/share, adequately covering its $0.27/share common stock dividend. Notably, ADAM has raised its common stock dividend twice over the past year.
ADAM also maintains a meaningful liquidity cushion. At the end of Q2, the mREIT reported $182 million of available cash and another $218 million of financing capacity, providing $400 million of excess liquidity. Importantly, there are no corporate debt maturities until 2029.
ADAM has five publicly traded baby bonds, offering yields above 9%. These senior notes represent a small portion of the company’s capital structure ($11.7 billion of investment assets and $348 million of senior notes), giving these notes a substantial asset and equity cushion beneath them. Most importantly, baby bonds have set maturity dates, requiring the company to redeem them at the $25/share par value (assuming the issuer remains solvent and the terms are honored). For investors, this results in a return of their principal to redeploy as they see fit.
9.125% Senior Notes due 7/1/2029 (ADAMI) – Yield 9.1%
This baby bond is currently callable, but unlikely to be redeemed due to higher borrowing costs at this time. ADAMI offers a 9.1% yield until its maturity in 2029.
9.125% Senior Notes due 4/1/2030 (ADAMG) – Yield 9.1%
ADAMG is callable after April 2027, but for the same reason as above, it is unlikely to be redeemed under the current interest rate conditions. This baby bond matures in April 2030, offering a steady 9.1% yield for the next ~3.5 years.
9.875% Senior Notes due 10/1/2030 (ADAMH) – Yield 9.8%
This is probably the best deal at this time. ADAMH cannot be called until April 2027, and even though there is a higher probability of redemption, investors have at least 2 more interest payments worth $1.23/share, until this time.
9.25% Senior Notes due 4/1/2031 (ADAMO) – Yield 9.3%
ADAMO has call protection until April 2028, providing a 1.5 year runway for 9.3% yields. This baby bond trades at a rare discount to par, and matures in April 2031.
9.60% Senior Notes due 10/1/2031 (ADAMK) – Yield 9.6%
ADAMK is the latest issuance, offering a hefty 9.6% yield, with call protection until October 2028. This provides at least 2 years of interest payments, with its maturity in October 2031.
If Rates Stay Higher
ADAM has less incentives to call its baby bonds early, allowing us to collect higher yields until their eventual maturities.
If Rates Drop
ADAM may seize the opportunity to borrow cheaper and redeem its higher coupon baby bonds. This means, investors get back $25/share on the redeemed notes, when the company decides to call them. This returns our investment, and allows us to re-deploy our capital as we see fit.
Two Ways to Pursue Income and Capital Preservation
We just discussed very different securities, but they share an important characteristic. They pay high yields, with properties to preserve their price levels. JAAA's thesis is built around high-quality CLO exposure, while ADAM's baby bonds combine high coupons with a defined path toward redemption. Let’s look at a quick comparison table for both.
JAAA | ADAM Baby Bonds | |
Security type | CLO ETF | Exchange-listed senior debt |
Income frequency | Monthly | Quarterly |
Income type | Distribution | Fixed interest |
Credit profile | AAA-rated CLO exposure | Senior debt of ADAM |
Coupon | Variable/market-dependent | Fixed |
Rate sensitivity | Floating-rate exposure | Fixed-rate |
Call risk | N/A | Yes (+12 months) |
Maturity | No maturity | 4–5 years |
Capital preservation thesis | High credit quality + CLO structure | Seniority + par redemption |
Rate scenario | Higher rates can support higher income | Higher rates can delay calls, allowing investors to collect higher yields for longer |
Lower-rate scenario | Income will decline proportionally | Potential early redemption |
Best suited for | Investors seeking monthly income | Investors seeking defined-term income |
Conclusion
High yield and capital preservation don't have to be mutually exclusive.
JAAA gives us monthly income backed by AAA-rated CLO exposure, while ADAM's baby bonds provide high fixed coupons with relatively near-term call dates and maturities.
Neither investment is risk-free. But by focusing on credit quality, security structure, and the path toward recovering our principal, we believe investors can build portfolios designed for both income today and capital preservation over time.
For the next two weeks you can try High Dividend Opportunities for $34.90 for your first month, regularly $55. That's 30 days inside the model portfolio, the buy and sell alerts, the income tools, and the community, with no long-term commitment. If it resonates, start your trial at incomemethod.com/hdo before October 7.
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