Fixed income mutual fund performance during and after a crisis: a Canadian case

Abstract

This study investigates the performance of the fixed income mutual funds industry, focusing on Canadian fixed income funds before, during, and after the 2008 global financial crisis. After recessionary shocks, investors look for ways to diversify their systematic risks. We investigate Canadian fixed income funds’ excess returns and dollar fund flow and show that the funds significantly underperform bond markets throughout the study period after controlling for fund characteristics and macroeconomic factors. Consistent with previous studies, we find that this underperformance is more apparent during market downturns. Indicating a spiral relationship, these results suggest that institutional investors perform poorly during financial crises, which is also observable in the volatility patterns in dollar fund flow. We also find that the flow is positively related to the crisis period, indicating that the dollar fund flow in fixed income funds reported a positive value during the recession, signifying an inflow.