Why Have Actively Managed Bond Funds Remained Popular?
57 Pages Posted: 1 Apr 2020 Last revised: 6 Feb 2021
Date Written: February 5, 2021
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 run risk). In conclusion, our results show that investors tend to benefit from active management in bond funds.
Keywords: Bond, Mutual Funds, Active Management, Active Share, Alpha
JEL Classification: G10, G11, G14, G20, G23
Suggested Citation: Suggested Citation