Wealth Manager - the site for professional investment managers

Register to get unlimited access to Citywire’s fund manager database. Registration is free and only takes a minute.

FCA warns consumers over corporate bond risks

13 Comments
FCA warns consumers over corporate bond risks

The Financial Conduct Authority (FCA) has outlined risks to consumers over corporate bonds, including potential liquidity risks.

In a statement, the FCA warned consumers that while there is a limited risk to capital when investing into corporate bond funds, they are not risk free.

The FCA said because these bonds are rated as being relatively low risk by credit rating agencies they have attracted large investments from retail investors.

The regulator said that extreme market conditions could lead fund managers unable to sell sufficient quantities of bond holdings to fulfil redemption orders, which could lead the investor unable to sell fund units and access money quickly.

'There is low trading activity in the markets for many of the bonds held by these funds – and the market for underlying bonds has shrunk in recent years. Fund managers manage this risk for you, by monitoring the values that can be bought and sold in each bond and limiting the size of funds’ holdings in any one bond,' the FCA said.

'Most of the time fund managers ensure that investors are able to buy and sell their units on any day. However, in very extreme market conditions fund managers could become unable to sell sufficient quantities of bond holdings to fulfil redemption orders, leaving investors unable to sell fund units.'

Additional risks include the impact of interest rate movements on corporate bonds and fund unit prices.

It also warned that while company defaults are unlikely such events could also impact the level of returns generated by the funds. 

The FCA has also urged investors to seek professional advice if they are having difficulty understanding corporate bond funds or are unable to do the due diligence around the investment.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
Play Biotech Growth: we will ride out this storm

Biotech Growth: we will ride out this storm

Geoffrey Hsu of Biotech Growth Trust says the sell-off in biotechnology stocks represents a buying opportunity for long-term investors.

Play Picton: the UK property hotspots for rental income

Picton: the UK property hotspots for rental income

Picton Property Income CEO Michael Morris reveals how he is planning to ride the ‘ripple effect’ as UK economic growth spills out from the capital across the country.

Brewin's Foster talks financial crisis MkII with Allianz's Riddell

Brewin's Foster talks financial crisis MkII with Allianz's Riddell

This week Brewin Dolphin's head of research talks to Mike Riddell, fund manager at Allianz Global Investors, about the forces driving bonds markets in a tumultuous week for markets.

Your Business: Cover Star Club

Profile: 'what we are doing at Mosaic is Darwinian'

Profile: 'what we are doing at Mosaic is Darwinian'

The changes in financial services over the last few years may leave some destitute warns Marco Sambucci of Mosaic Money Management

Wealth Manager on Twitter