Impact of fund, management and market characteristics on bond mutual fund performance

The authors examine the factors that influence risk-adjusted returns for bond mutual funds. The data set is divided into two groups: taxable bond funds and municipal bond funds. The factors are grouped into three categories: fund or portfolio characteristics, management-controlled factors, and bond market variables. Taxes, fund age, and operating expenses significantly affect the risk-adjusted returns for taxable bond funds. Portfolio concentration is statistically significant for municipal bond funds, but has a minor influence on taxable fund returns. Fund expenses and the average duration of the bonds in the portfolios are key determinants of municipal bond fund returns. It is concluded that portfolio managers can enhance bond fund shareholder returns.