Corporate and Government Bond Funds: An Analysis of Investment Style, Performance, and Cash Flows

We examine four separate classifications (high quality corporate, general corporate, government Treasury, and general government) of investment grade bond funds over the 1994-2004 period. We verify that distinct differences exist in investment styles across the classifications. We also document significant differences in performance as corporate funds outperform government funds on a risk adjusted basis. The performance results are robust to alternative evaluation metrics. An examination of cash flows to the funds indicates that bond fund investors are aware of the performance difference and have directed their investment dollars accordingly.