Performance Of Bond Mutual Funds Research Articles

Can managers’ characteristics explain European bond mutual fund performance?

This study aims to discover whether the characteristics of European bond fund managers affect mutual fund performance and risk. Based on 7,930 fund-year observations, gathered from the Morningstar database for the period 2005–2019, we have compared several performance and risk measures among team-managed and single-managed funds. We have also analysed the impact of gender diversity on fund performance and risk. Our results indicate that funds managed by teams do not exhibit statistically significant differences in performance or risk when compared to single-managed ones. Management teams with greater gender diversity do not significantly impact fund performance or risk in relation to all-male or all-female teams. Overall, our findings indicate that the underrepresentation of women in the fund industry, or gender bias, does not make economic sense.

Municipal Bond Mutual Fund Performance and Active Share

This article evaluates the performance of actively managed US open-end municipal bond mutual funds between 1999 and 2020. Fund classifications span national short, intermediate, and long-term, as well as high-yield and single-state portfolios. An initial investigation reveals that municipal securities manifest characteristics of a distinct asset class. Performance measures include benchmark-adjusted returns and single- and multifactor pricing models. During the sample period, only 8% of funds generated returns that beat their benchmark indexes, and 29% produced positive excess returns (alpha) based on a four-factor pricing model. Longer-maturity funds generally performed better than short-maturity funds. Based on portfolio performance, managers specializing in single-state issues do not manifest unique knowledge or insight. Active share for the aggregate sample was 25%, implying an active expense ratio exceeding 3% and annualized active alpha below −3%. The evidence overall suggests that active management of municipal bond portfolios is not a value-enhancing activity. <b>TOPICS:</b>Mutual funds/passive investing/indexing, fixed income and structured finance, factor-based models, performance measurement <b>Key Findings</b> ▪ Municipal bonds possess several characteristics that satisfy traditional criteria qualifying them as a distinct asset class. In this first evaluation of the performance of actively managed open-end municipal security mutual funds, the authors find that the vast majority of funds underperform their benchmark indexes. They also document significant underperformance when accounting for four fixed-income market systematic risk factors. ▪ The performance results vary by fund type, with short-term funds underperforming more acutely than intermediate- or long-term funds. Single-state funds are among the worst performers, suggesting that managers do not possess unique insight about the issuer domicile and its securities. ▪ Portfolio active share for muni bond funds is about 25% (similar to what extant work finds for equity funds), which implies an annualized active expense ratio of about 3% (similar to fees charged by some hedge funds).

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 effect of social screening on bond mutual fund performance

This study measures the financial impact of screening for environmental, social and governance criteria on corporate bond portfolios. Specifically, the risk-adjusted financial performance of 103 socially responsible bond funds in the US and the Eurozone is compared with a matched sample of conventional funds. During the period 2001–2014, socially responsible bond funds outperform by one-half of one percent annually. An evaluation of fund holdings and a performance-attribution analysis suggest that this outperformance is directly related to the mitigation of ESG risks, which is achieved by the exclusion of corporate bond issuers with poor corporate social responsibility activities. A separation of crisis and non-crisis periods further indicates that the outperformance is especially likely to occur during recessions or bear market periods. We confirm this crisis-related return effect from a sample of socially screened bond indices. Moreover, our results are robust to alternative definitions of sustainability, survivorship bias, fund characteristics and stable in the US and Eurozone sub-samples.

The Effect of Social Screening on Bond Mutual Fund Performance

The Effect of Social Screening on Bond Mutual Fund Performance

Measuring bond mutual fund performance with portfolio characteristics

Abstract This paper studies the performance of U.S. bond mutual funds using measures constructed from a novel data set of portfolio weights. Active fund managers exhibit outperformance before costs and fees generating, on average, gross returns of 1% per annum over the benchmark portfolio constructed using past holdings (approximately the same magnitude as expenses and transaction costs combined). This suggests that fund managers are able to earn back their fees and costs. There is evidence of neutral ability to time different portfolio allocations (sector, credit quality, and portfolio maturity allocations) and only a subgroup of bond funds exhibit successful timing ability. One performance measure based on portfolio holdings predicts future fund performance and provides information not contained in the standard measures. These results provide the first evidence of the value of active management in bond mutual funds.

Securities Selection and Portfolio Optimization: Is Money Being Left on the Table?

In this report we ask the questions Can fund managers form better-performing portfolios of stocks or bonds, in particular, can they take advantage of: 1) Single-index Capital Asset Pricing Models (CAPM), 2) Multi-factor models, 3) Generalized CAPM (G-CAPM) to improve stock and bond mutual fund performance? We find the following answers: 1) Using CAPM can increase gross annual returns by 70 basis points to 80 basis points, 2) Using multi-factor models can increase gross annual returns by 200 basis points or more, 3) Using G-CAPM can increase gross annual returns by 300 basis points or more.

The Performance of Corporate Bond Mutual Funds: Evidence Based on Security-Level Holdings

AbstractThis is the first study of corporate bond mutual fund performance that examines detailed security-level holdings and returns. The new database allows us to decompose the costs and benefits of active management. In contrast to prior research on equity funds that shows evidence of stock-selection ability, we do not find evidence consistent with bond fund managers, on average, being able to select corporate bonds that outperform other bonds with similar characteristics. We find neutral to weakly positive evidence of ability to time corporate bond characteristics. Overall results show that the costs of active management on average appear larger than the benefits.

Measuring Bond Mutual Fund Performance with Portfolio Characteristics

This paper studies the performance of U.S. taxable bond mutual funds employing a novel data set of portfolio weights. Active fund managers exhibit outperformance before costs and fees generating, on average, gross returns of 1% per annum over the benchmark portfolio constructed using past holdings (approximately the same magnitude as expenses and transaction costs combined). The performance measure based on portfolio holdings appears to predict future fund performance and provide information not contained in the standard measures. These results are relevant for investors and provide new evidence that supports the value of active mutual fund management in the fixed-income markets.

Measuring Bond Mutual Fund Performance with Portfolio Characteristics

Measuring Bond Mutual Fund Performance with Portfolio Characteristics

Measuring Bond Mutual Fund Performance with Portfolio Holdings

This paper studies the performance of U.S. taxable bond mutual funds employing a novel data set of portfolio weights from 1997 to 2006. The investment ability of fund managers is examined considering different asset allocation choices such as asset class, credit quality allocation, and portfolio maturity decisions. This paper shows that active managers engage in strategies of rotating their portfolios across fixed-income sectors and bond characteristics. Few bond funds exhibit successful timing ability by adopting these strategies. Comparing fund returns plus expenses and transaction costs with the returns of a portfolio that is invested in the previously disclosed holdings, I document that active managers exhibit some outperformance before costs and fees, which could be explained by their ability to select securities that deliver better returns than the securities in the benchmark indices. In particular, on average, active managers generate gross returns of 1\% per annum over the benchmark portfolio constructed using past holdings. This is approximately of the same magnitude as expenses and transaction costs combined. The performance measure based on portfolio holdings appears to predict future fund performance and to provide information about future fund returns that is not contained in the standard measures. These results are relevant for investors and provide new evidence that supports the value of active mutual fund management in the fixed-income market.

Measuring the timing ability and performance of bond mutual funds

This paper evaluates the ability of bond funds to “market time” nine common factors related to bond markets. Timing ability generates nonlinearity in fund returns as a function of common factors, but there are several non-timing-related sources of nonlinearity. Controlling for the non-timing-related nonlinearity is important. Funds’ returns are more concave than benchmark returns, and this would appear as poor timing ability in naive models. With controls, the timing coefficients appear neutral to weakly positive. Adjusting for nonlinearity, the performance of many bond funds is significantly negative on an after-cost basis, but significantly positive on a before-cost basis.

Measuring Bond Mutual Fund Performance with Portfolio Characteristics

Measuring Bond Mutual Fund Performance with Portfolio Characteristics

News and the cross-section of expected corporate bond returns

We study the cross-section of expected corporate bond returns using an inter-temporal CAPM (ICAPM) with three-factors: innovations in future excess bond returns, future real interest rates and future expected inflation. Our test assets are a broad range of corporate bond market index portfolios. We find that two factors – innovations about future inflation and innovations about future real interest rates – explain the cross-section of expected corporate bond returns in our sample. Our model provides an alternative to the ad hoc risk factor models used, for example, in evaluating the performance of bond mutual funds.

News and the Cross-Section of Expected Corporate Bond Returns

We study the cross-section of expected corporate bond returns using an inter-temporal CAPM (ICAPM) with three factors: innovations in future excess bond returns, future real interest rates and future expected inflation. Our test assets are a broad range of corporate bond market index portfolios. We find that two factors - innovations about future inflation and innovations about future real interest rates - explain the cross-section of expected corporate bond returns in our sample. Our model provides an alternative to the ad hoc risk factor models used, for example, in evaluating the performance of bond mutual funds.

Impact of fund, management and market characteristics on bond mutual fund performance

The authors examine the factors that influence risk-adjusted returns for bond mutual funds. The data set is divided into two groups: taxable bond funds and municipal bond funds. The factors are grouped into three categories: fund or portfolio characteristics, management-controlled factors, and bond market variables. Taxes, fund age, and operating expenses significantly affect the risk-adjusted returns for taxable bond funds. Portfolio concentration is statistically significant for municipal bond funds, but has a minor influence on taxable fund returns. Fund expenses and the average duration of the bonds in the portfolios are key determinants of municipal bond fund returns. It is concluded that portfolio managers can enhance bond fund shareholder returns.

The after-tax turnover-related performance of bond mutual funds

The after-tax turnover-related performance of bond mutual funds

The Performance of Bond Mutual Funds

Using linear and nonlinear models, the authors examine two samples of bond funds--one sample designed to eliminate survivorship bias and a second much larger sample. Overall and for subcategories of bond funds, they find that bond funds underperform relevant indexes postexpenses. The authors' results are robust across a wide choice of models. They find that, on average, a percentage-point increase in expenses leads to a percentage-point decrease in performance. The nonlinear model weights closely match actual composition weights. The authors find no evidence of predictability using past performance to predict future performance for their unbiased sample. Copyright 1993 by University of Chicago Press.

Determinants of Bond Mutual Fund Performance

Determinants of Bond Mutual Fund Performance