Measuring Bond Mutual Fund Performance with Portfolio Characteristics

Abstract:     
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.

Number of Pages in PDF File: 42

Keywords: Bond mutual funds, Performance evaluation, Portfolio holdings

JEL Classification: G11, G23

working papers series