Hidden risks in corporate bond ETFs

Corporate bond exchange-traded funds are in hot demand. But many investors are oblivious to a key risk. Paul Amery explains.

Exchange-traded funds (ETFs) tracking bond indices have certainly been in favour in 2012. Having attracted over $50bn in new money in the first eight months of the year, they have accounted for more than a third of all the global ETF market's inflows for this year and have already surpassed 2011's annual total (itself a record).

ETFs offering exposure to corporate bonds are in particular demand, as they provide one of the few ways of generating extra income in the current environment of near-zero official interest rates. But I worry that investors have missed a key risk.

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Paul Amery

Paul is a multi-award-winning journalist, currently an editor at New Money Review. He has contributed an array of money titles such as MoneyWeek, Financial Times, Financial News, The Times, Investment and Thomson Reuters. Paul is certified in investment management by CFA UK and he can speak more than five languages including English, French, Russian and Ukrainian. On MoneyWeek, Paul writes about funds such as ETFs and the stock market.