BondBloxx ETFs is doubling down on private credit at a time when parts of Wall Street are sounding alarms about potential cracks in the market. Despite headlines warning of stress in certain funds, the firm’s leadership believes the broader private credit landscape remains a compelling opportunity for income-focused investors.

In a recent appearance on CNBC’s ETF Edge, Joanna Gallegos, co-founder and chief operating officer of BondBloxx, addressed concerns about isolated markdowns in private credit portfolios. She noted that when problems surface, they often stem from concentration risk tied to a single manager’s strategy or a narrow set of loans. If one fund is heavily exposed to specific companies or sectors, volatility can follow when those holdings are repriced.

Gallegos, who previously led global ETF strategy at J.P. Morgan Asset Management, argues that diversification is the key differentiator in BondBloxx’s approach. The firm’s BondBloxx Private Credit CLO ETF (ticker: PCMM) is structured to provide exposure to thousands of underlying loans, reducing reliance on any single borrower or manager. According to Gallegos, the fund offers access to more than 7,000 individual loans, helping to spread risk broadly across the private credit universe.

She emphasized that approximately 80 percent of the ETF’s exposure is dedicated specifically to private credit. In her view, that makes it a more direct way to access the asset class compared with other vehicles that may blend private credit with public securities or related strategies. As interest in alternative income sources grows, clarity of exposure has become an increasingly important consideration for investors.

BondBloxx introduced its Private Credit CLO ETF in December 2024, marketing it as the first exchange-traded fund designed to provide direct exposure to private credit through collateralized loan obligations. Since its launch, the fund has delivered steady gains. As of midweek trading this week, FactSet data shows the ETF has risen roughly 7 percent since inception and about 2 percent over the past three months.

For Gallegos, the appeal of private credit is not just structural but also fundamental. She points to yields that remain attractive relative to many traditional fixed-income products. In addition, she notes that a growing share of companies now operate outside the public markets. As more businesses choose to remain private for longer periods, private credit has become an increasingly important financing channel.

By distributing exposure across a wide range of loans and managers, BondBloxx aims to reduce the kind of concentration risk that can magnify losses in stressed scenarios. Rather than depending on one portfolio manager’s underwriting decisions, the ETF aggregates credit risk across a broad base, which the firm believes can enhance resilience.

Not everyone is dismissing risks outright, however. In the same ETF Edge segment, Todd Sohn, senior ETF and technical strategist at Strategas Securities, said that broader credit conditions currently appear stable. Credit spreads in both high-yield and investment-grade markets remain near multi-decade lows, suggesting investors are not demanding significantly higher compensation for perceived risk.

That said, Sohn is monitoring the possibility of a credit event. His concern centers on whether stress in the less liquid corners of private credit could spill over into other areas of the financial system. If issues in illiquid private loans begin to affect banks, public debt markets, or consumer conditions, that would represent a more systemic warning sign.

For now, he observes that traditional indicators remain relatively healthy. Banks appear stable, and consumer activity has not shown signs of sharp deterioration. Still, Sohn cautions that credit disruptions can sometimes emerge unexpectedly, particularly if risks in niche segments are underestimated.

As debate continues over the durability of private credit, firms like BondBloxx are betting that diversified, transparent structures can help investors capture income without taking on excessive concentration risk. Whether private credit proves resilient in a changing economic environment will likely depend on how well these structures perform if broader financial conditions tighten.