Performance Of Bond Funds Research Articles

Winning at the Starting Line: Underwriter Connections and Municipal Bond Fund Performance

Winning at the Starting Line: Underwriter Connections and Municipal Bond Fund Performance

Morningstar Star ratings and the performance, risk and flows of European bond mutual funds

In this paper we evaluate the relation between Morningstar Star ratings and the performance, risk and flows of European bond funds over the period 2006–2019 based on a comprehensive and survivorship-free dataset comprising 939 mutual funds. Fund performance is evaluated by net and gross returns, as well as alphas based on single and multi-factor models. Our results show that well-rated mutual funds exhibit superior performance even after controlling for differences in fund characteristics although they exhibit high risks both in terms of volatility and value-at-risk. We also find strong evidence of fund performance persistence and rating persistence. Finally, Morningstar Star ratings are also useful for explaining inflows and outflows. Funds with higher ratings attract more flows even if we control for prior performance.

Seeking Improved Yield: How to Make SEC Yield More Suitable for TIPS

Inconsistent application of the SEC Yield formula to calculate TIPS bond mutual fund and TIPS bond ETF yields can lead to misleading yield reporting. This article recommends two adjustments to make the SEC Yield calculation more suitable for comparing TIPS bond fund performance. First, apply the break-even inflation rate to re-express each TIPS bond’s real yield as an equivalent nominal yield. Second, use the nominal yield to maturity to calculate 30 days’ interest income, but do not add the monthly inflation adjustment to the TIPS bond’s principal amount.

Maturity-Matched Bond Fund Performance

Performance regressions lever expected benchmark returns linearly to the risk exposures of the fund. The interest rate (IR) risk premium, however, usually follows a decreasingly upward-sloping yield curve, characterizing the nonlinearity between expected return and IR risk exposure—for example, maturity or duration. If the exposures of the fund and the benchmark differ, this discrepancy causes alpha to deviate from the active bond selection performance it is supposed to measure. Performance ratings and investor flows are affected by this alpha deviation. Our simple remedy is to individually match funds and benchmarks using their durations. Beta and R2 are candidates for alternative matchings.

Beware of Chasing Yield: Bond Fund Yield, Flows and Performance

This paper studies the role of mutual fund yield in driving investor flows and performance of bond funds. Using two common measures, the SEC yield and 12-month distribution yield, we find strong evidence that investors tend to chase bond funds with higher yields, even after controlling for total fund returns and fund ratings. Although bond funds with higher yields achieve higher average total returns, the return spread is less than one half of the yield spread, and is attributable to higher fund risk. We also show that high yield bond funds suffer sharp losses during crisis periods, which trigger large outflows.

Out-of-Sample Performance of Mutual Fund Predictors

Abstract We analyze the out-of-sample performance of variables shown to forecast future mutual fund alphas. The degree of predictability, as measured by alpha spreads from quintile sorts or cross-sectional regression slopes, falls by at least half post-sample. These declines appear to be primarily the result of changes in the level of arbitrage activity in the market, with mutual fund competition appearing to play a secondary role. We find no evidence that the declines are the result of data snooping or learning by investors or fund managers. Finally, we show that corporate bond fund performance exhibits similar dependence on measures of bond market arbitrage activity.

Entrusting decisions to the public service pension fund: An integrated predictive model with additive network DEA approach

A critical issue for ensuring long-term sustainability of pension funds is how the Public Service Pension Fund Management Board (PSPFMB) makes entrusting decisions to choose investment trust corporations (ITCs). To design a more comprehensive performance measure, this study uses the additive network data envelopment analysis (DEA) approach to measure efficiency scores of 34 ITCs, including operating performance, equity fund performance, and bond fund performance. We further propose a method to effectively forecast the future efficiency scores of each ITC by using a trend analysis technique. Our mechanism for ITC evaluation helps improve the deficiency of old decision-making processes that merely look at ITCs’ past performances. Our proposed approach offers a theoretical contribution to the additive DEA literature by through its practicality and by integrating measurement and prediction procedures. For a practical implication with additive network DEA, we provide a more feasible method for selecting ITCs that will run the Public Service Pension Fund.

Active Share and Bond Mutual Funds

In sharp contrast to equity funds, actively managed bond funds have remained popular. This paper explores why by examining how active share affects the performance, risk management, and flows of bond funds. We find that bond funds tend to be highly active and often invest outside of their primary asset classes. Bond funds with higher active share persistently earn higher alphas, demonstrate lower downside risk, and exhibit less flow sensitivity to poor performance (consistent with alleviating investor run risk). In conclusion, our results show that investors tend to benefit from active management in bond funds.

The Performance of US Bond Mutual Funds

We evaluate the performance of the US bond mutual fund industry using a comprehensive sample of bond funds over a long time period from January 1998 to February 2017. In this one study, we examine bond fund selectivity, market timing and performance persistence. We evaluate bond funds relative to their self-declared benchmarks and in terms of both gross-of-fee returns and net-of-fee returns. We document considerable abnormal performance among funds both to the fund (gross returns) and to the investor (net returns). Bond fund performance is found to be superior in the post financial crisis period. However, past strong performance cannot be relied upon to predict future performance. Finally, while some funds exhibit market timing ability; we find a predominance of negative market timing among US bond mutual funds.

The performance of US bond mutual funds

We evaluate the performance of the US bond mutual fund industry using a comprehensive sample of bond funds over a long time period from January 1998 to February 2017. In this one study, we examine bond fund selectivity, market timing and performance persistence. We evaluate bond funds relative to their self-declared benchmarks and in terms of both gross-of-fee returns and net-of-fee returns. We document considerable abnormal performance among funds both to the fund (gross returns) and to the investor (net returns). Bond fund performance is found to be superior in the post financial crisis period. However, past strong performance cannot be relied upon to predict future performance. Finally, while some funds exhibit market timing ability; we find a predominance of negative market timing among US bond mutual funds.

Investigating the factors affecting the performance of offshore high-yield bond funds

We investigate the factors affecting the performance of offshore high-yield bond funds and reveal two impressive findings, which might contribute to the existing literature. First, we disclose that the funds registered in Luxembourg perform better than those registered in Ireland, which seems unrevealed in the existing literature. Second, we show that the funds with high volatilities might not have better performance. We infer that high volatilities incorporating systematic and unsystematic risks might not enhance bond returns, even though we reveal that systematic risks would enhance bond returns in this study.

Investigating the factors affecting the performance of offshore high-yield bond funds

Investigating the factors affecting the performance of offshore high-yield bond funds

Bond Fund Performance: Does Management Activity Pay?

Why are investors still pouring money into active funds despite numerous findings of underperformance and growing supply of low-cost passive alternatives? Recent equity fund studies explain this behavior with a positive activity-performance relation. This study is the first consistently analyzing the activity-performance relation in corporate and government bond funds since the 1980s. Contrasting equity funds, bond fund performance negatively relates to higher activity, especially to timing. Selection activity was positively related to performance only during the 2000s but is since then negatively related. Thus, higher activity does not pay for bond funds! Digging deeper into the sources of the relation for corporate bond funds reveals that intensive derivative use, long derivatives, larger size, higher fees, lower flow risk and a non-fundamental investment approach signal a less negative relation. For government bond funds, the results suggest that management ability is generally lower than in corporate bond funds.

Bond Portfolio Holding Period Return Decomposition

Bond portfolio holding period returns are decomposed into four macro components: horizon, spot rate, spread, and interaction. The spot rate and spread could be decomposed further based on modified duration, convexity, and cross-convexity, each of which could be further decomposed into three subcomponents tied to level, slope, and curvature. Applying a parsimonious version of this model to the Morningstar universe of bond funds explains approximately 56% of the variability of the returns. Thus, we provide a powerful approach to attribution of bond fund performance, aiding the many different stakeholders in their efforts to improve their decision-making process.

The conditional performance of Euro bond funds: evidence from Portugal during the debt crisis

ABSTRACTThis paper evaluates the performance of a survivorship bias-free data set of Portuguese funds investing in Euro-denominated bonds by using conditional models that consider the public information available to investors when the returns are generated. We find that bond funds underperform the market significantly and by an economically relevant magnitude. This underperformance cannot be explained by the expenses they charge. Our findings support the use of conditional performance evaluation models, since we find strong evidence of both time-varying risk and performance, dependent on the slope of the term structure and the inverse relative wealth variables. We also show that survivorship bias has a significant impact on performance estimates. Furthermore, during the European debt crisis, bond fund managers performed significantly better than in non-crisis periods and were able to achieve neutral performance. This improved performance throughout the crisis seems to be related to changes in funds’ investment styles.

Duration-Adjusted Bond Fund Performance

We uncover a previously neglected mechanical bias in bond fund performance due to the use of benchmarks with non-matching durations. We show that the duration bias is caused by the non-linear reaction of bonds with different durations to interest rate changes. We find empirically that the usual use of a broad bond index in previous research leads to a significant overestimation of average bond fund performance and to spurious findings of performance persistence. The key takeaway of our research is thus, that bond fund performance should be duration-adjusted by choosing for each fund the benchmark index which best matches its duration.

Bond Fund Performance During Recessions and Expansions: Empirical Evidence from a Small Market

AbstractThis paper provides the first investigation about bond mutual fund performance during recession and expansion periods separately. Based on multi‐factor performance evaluation models, results show that bond funds significantly underperform the market during both phases of the business cycle. Nevertheless, unlike equity funds, bond funds exhibit considerably higher alphas during good economic states than during market downturns. These results, however, seem entirely driven by the global financial crisis sub‐period. In contrast, during the recession associated to the Euro sovereign debt crisis, bond funds are able to accomplish neutral performance. This improved performance throughout the debt crisis seems to be related to more conservative investment strategies, which reflect an increase in managers' risk aversion.

The impact of the Eurozone sovereign debt crisis on bond fund performance persistence: Evidence from a small market

ABSTRACTWe evaluate the impact of the Eurozone sovereign debt crisis on the performance and performance persistence of a survivorship bias-free sample of bond funds from a small market, identified as one of the most affected by this event, during the 2001–2012 period. Besides avoiding data mining, we also introduce a methodological innovation in assessing bond fund performance persistence. Our results show that bond funds underperform significantly both during crisis and non-crisis periods. Besides, we find strong evidence of performance persistence, for both short- and longer-term horizons, during non-crisis periods but not during the debt crisis. In this way, the persistence phenomenon in small markets seems to occur only during non-crisis periods and this is valuable information for bond fund investors to exploit.

The Performance of European Socially Responsible Fixed-Income Funds

Evidence to date on the performance of Socially Responsible Investments (SRI) has almost exclusively been conducted within equity markets. We provide new evidence on the potential of SRI for other asset classes, by assessing the performance of SRI fixed-income funds. This is the first comprehensive investigation on the performance of European SRI bond and balanced funds, domiciled in the main European markets (France, Germany and the UK), compared to characteristics-matched conventional funds.Our results, based on a conditional multi-factor model with time-varying alphas and betas, show that in most cases European SRI balanced funds exhibit no statistically significant differences in performance in relation to conventional funds, both during the overall sample period as well as during recession and expansion periods separately. With regard to SRI bond funds, empirical evidence is mixed. French SRI bond funds match the performance of their conventional peers, German funds slightly outperform and UK funds significantly underperform conventional funds. Furthermore, during expansion periods, funds from the Euro-Area countries significantly outperform their conventional peers, whereas during recessions they are able to perform at least as well as conventional funds. These results mean that SRI funds in the fixed-income area seem to provide additional protection to investors in market downturns.

Risk-adjusted Performance of Romanian Bond Funds during the Global Economic Crisis

Abstract Bond funds faced the global financial crisis by offering a safer and profitable investment alternative in comparison to equity and balanced funds. The paper analyzes the evolution of Romanian bond funds industry during 2007-2009 and tries to assess the risk-adjusted performance of these investment vehicles. Panel data analysis results in positive alphas over the examined period regardless of the proxy benchmark. We used both the Romanian market index BET and the ROBOR 12-M series as benchmarks. The results show that during the crisis, Romanian bond funds managed to attain positive HPR and positive risk adjusted performance.