The Performance of Investment Grade Corporate Bond Funds: Evidence from the European Market
European Journal of Finance, Vol. 15, No. 2, pp. 191-209, 2009
Posted: 27 Jul 2006 Last revised: 13 Aug 2010
Date Written: October 1, 2008
This paper examines the risk-adjusted performance of mutual funds offered in Germany which exclusively invest in the 'rather new' capital market segment of euro-denominated investment grade corporate bonds. The funds are evaluated employing a single-index model and several multi-index and asset-class-factor models. In contrast to earlier studies dealing with (government) bond funds, we account for the specific risk and return characteristics of investment grade corporate bonds and use both rating-based indices and maturity-based indices, respectively, in our multi-factor models. In line with earlier studies, we find evidence that corporate bond funds, on average, under-perform the benchmark portfolios. Moreover, there is not a single fund exhibiting a significantly positive performance. These results are robust to the different models. Finally, we examine the driving factors behind fund performance. As well as examining the influence of several fund characteristics, in particular fund age, asset value under management and management fee, we investigate the impact of investment style on the funds' risk-adjusted performance. We find indications that funds showing lower exposure to BBB-rated bonds, older funds, and funds charging lower fees attain higher risk-adjusted performance.
Keywords: performance measurement, European corporate bond market, investment grade corporate bond mutual funds, multi-index model, asset-class-factor model, Generalized Treynor Ratio
JEL Classification: G11, G23
Suggested Citation: Suggested Citation