THE PERFORMANCE OF BOND MUTUAL FUNDS

Using linear and nonlinear models, we examine two samples of bond funds: one sample designed to eliminate survivorship bias, and a second much larger sample. Overall and for subcategories of bond funds, we find that bond funds underperform relevant indexes post-expenses. Our results are robust across a wide choice of models. We find that, on average, a percentage-point increase in expenses leads to a percentage-point decrease in performance. The nonlinear model weights closely match actual composition weights. We find no evidence of predictability using past performance to predict future performance for our unbiased sample.