"Core" bond funds are mutual funds or exchange-traded funds (ETFs) that typically provide broad exposure to the investment-grade segments of the bond market - such as U.S. Treasuries, corporate bonds, and mortgage-backed securities - and that often employ an index-based approach. Such funds have performed reasonably well in 2012: the iShares Core Total U.S. Bond Market ETF (ticker:AGG), for example, is up 3.45% this year after gaining 7.84% in 2011.
Despite these decent returns, the investment manager BlackRock is warning investors not to get complacent. In a recent post on its website, the company stated, "What worked in the past may not work in the future... With interest rates near historic lows, new risks for traditional core fixed income investors are rising. Indeed, inflation already outstrips the yield from the Barclays Aggregate and any rise in rates will likely result in negative total returns for the Index." The piece goes on to make the case for actively-managed funds (i.e., those whose managers pick securities that they think will beat the benchmark) as a way to reduce the risk that rates will rise in 2013.
The full article is available here. Keep in mind, the case for active management is self-serving to some extent, since Blackrock is promoting one of its actively-managed funds. Still, investors who have become used to steady gains from their core bond funds may want to take a look at this discussion about the limitations of an index-based approach.