Abstract
The authors evaluate the ability of various mutual fund attributes to explain subsequent returns for bond mutual funds. The relationship between the risk variables and future fund returns changes dramatically from quarter to quarter in the study period, 1992–1999. The relationship between past performance and expenses and subsequent fund returns is more consistent. Bond fund investors who have no forecast of movements in rates or spreads should diversify across funds with different target maturities and credit quality. Within a category they should focus on funds with good past risk-adjusted performance and low expenses. Bond fund investors who have a forecast for rates and spreads should invest in low-cost funds with good track records in the bond fund categories expected to prosper during the forecast environment.
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