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The performance of investment grade corporate bond funds: evidence from the European market

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  • Leif Holger Dietze
  • Oliver Entrop
  • Marco Wilkens

Abstract

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, particularly 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.

Suggested Citation

  • Leif Holger Dietze & Oliver Entrop & Marco Wilkens, 2009. "The performance of investment grade corporate bond funds: evidence from the European market," The European Journal of Finance, Taylor & Francis Journals, vol. 15(2), pages 191-209.
  • Handle: RePEc:taf:eurjfi:v:15:y:2009:i:2:p:191-209
    DOI: 10.1080/13518470802588841
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    Citations

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    Cited by:

    1. Henke, Hans-Martin, 2016. "The effect of social screening on bond mutual fund performance," Journal of Banking & Finance, Elsevier, vol. 67(C), pages 69-84.
    2. Grose, Chris & Dasilas, Apostolos & Alexakis, Christos, 2014. "Performance persistence in fixed interest funds: With an eye on the post-debt crisis period," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 33(C), pages 155-182.
    3. repec:bla:irvfin:v:17:y:2017:i:1:p:163-170 is not listed on IDEAS
    4. Christian Klein & Christoph Stellner, 2014. "The systematic risk of corporate bonds: default risk, term risk, and index choice," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 28(1), pages 29-61, February.

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