Performance persistence and management skill in nonconventional bond mutual funds

Abstract

Recent empirical research has identified a tendency for equity mutual funds to provide consistent performance relative to other funds over time. Studies of bond funds have centered around investment grade, straight bonds and have concluded that fund managers outperform indexes on a gross (although not net) basis, but that performance is hampered by high expense levels. We examine nonconventional bond funds (high-yield bonds, global issues and convertible bonds) and find that short-term performance persistence is present, but limited to the high-yield bond subsample. Fund managers are unable to distinguish themselves in the long term, despite the diverse nature of the funds they oversee.