The Performance of Corporate-Bond Mutual Funds:Evidence Based on Security-Level Holdings

This is the first study of corporate-bond mutual fund performance that examines detailedsecurity-level holdings and returns. The new database allows us to decompose the costsand benefits of active management. In contrast to prior research on equity funds thatshows evidence of stock-selection ability, we do not find evidence consistent with bondfund managers, on average, being able to select corporate bonds that outperform otherbonds with similar characteristics. We find neutral to weakly positive evidence of abilityto time corporate bond characteristics. Overall results show that the costs of activemanagement on average appear larger than the benefits.