Cracks appear in corporate-bond ETFs

Severe volatility has opened up gaps between company-debt market trackers and the underlying assets.

Plunging prices have closed two leveraged oil funds © iStockphoto

Exchange-traded funds (ETFs) have, by and large, had a good crisis. These baskets of securities (versions range from equities and bonds to futures and commodities) track an underlying index and are traded like shares on a stock exchange. They have mostly replicated the ups and downs of the major indices faithfully.

Many corporate-bond ETFs, however, haven’t. The concern here has long been that although corporate-bond ETFs are highly liquid and hence easy to trade in and out of, the actual bonds held in the portfolios are a good deal less liquid. So investors might find it easier to sell the liquid assets (the ETFs) rather than the less liquid underlying assets, opening up pricing mismatches.

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David C. Stevenson
Contributor

David Stevenson has been writing the Financial Times Adventurous Investor column for nearly 15 years and is also a regular columnist for Citywire. He writes his own widely read Adventurous Investor SubStack newsletter at davidstevenson.substack.com

David has also had a successful career as a media entrepreneur setting up the big European fintech news and event outfit www.altfi.com as well as www.etfstream.com in the asset management space. 

Before that, he was a founding partner in the Rocket Science Group, a successful corporate comms business. 

David has also written a number of books on investing, funds, ETFs, and stock picking and is currently a non-executive director on a number of stockmarket-listed funds including Gresham House Energy Storage and the Aurora Investment Trust. 

In what remains of his spare time he is a presiding justice on the Southampton magistrates bench.