Corporate Bond Mutual Funds and ETFs – The Role of Factors

Investors have many options nowadays to invest in corporate bonds. Traditionally, most investors opted for fundamentally managed active mutual funds, but with the rise of passive investing, market-tracking funds, and in particular exchange traded funds (ETFs), have also become popular investments. An important finding in the equity literature on mutual funds is that a substantial part of a fund’s performance can be explained by factor exposures. Well-known factors are Value, Momentum, Size and Low-Risk. 

The goal of this research project is to investigate both active and passive corporate bond mutual funds and ETFs. In particular, the question is whether these investment vehicles bring the investor any factor exposure. Moreover, we want to see whether this factor exposure results in any alpha, before but also after fees. Finally, can we also attribute dispersion in mutual fund performance to differences in factor exposures, and are these predictive for future fund performance?

Creative, analytic and programming skills are essential in order to successfully complete the project.

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[1] Clare, A., N. O’Sullivan, M. Sherman, S. Zhu, 2019, “The performance of US bond mutual funds”, International Review of Financial Analysis

[2] Gelderen, E. Van, J. Huij, 2014, “Academic Knowledge Dissemination in the Mutual Fund Industry: Can Mutual Funds Successfully Adopt Factor Investing Strategies?”, Journal of Portfolio Management

[3] Houweling, P. 2012, “On the Performance of Fixed-Income Exchange-Traded Funds”, The Journal of Index Investing

[4] Houweling, P., J. van Zundert, 2017, “Factor Investing in Corporate Bonds”, Financial Analysts Journal

[5] Huij, J., J. Derwall, 2008, “Hot Hands in Bond Funds”, Journal of Banking & Finance

[6] Israel, R., D. Palhares, S.A. Richardson, 2018, “Common factors in corporate bond returns”, Journal of Investment Management