Municipal Bond Mutual Fund Performance and Active Share

Joshua A. Gurwitz, David Smith and Gerhard Van de Venter ()

Published Paper Series from Finance Discipline Group, UTS Business School, University of Technology, Sydney

Abstract: This article evaluates the performance of actively managed US open-end municipal bond mutual funds between 1999 and 2020. Fund classifications span national short, intermediate, and long-term, as well as high-yield and single-state portfolios. An initial investigation reveals that municipal securities manifest characteristics of a distinct asset class. Performance measures include benchmark-adjusted returns and single- and multifactor pricing models. During the sample period, only 8% of funds generated returns that beat their benchmark indexes, and 29% produced positive excess returns (alpha) based on a four-factor pricing model. Longer-maturity funds generally performed better than short-maturity funds. Based on portfolio performance, managers specializing in single-state issues do not manifest unique knowledge or insight. Active share for the aggregate sample was 25%, implying an active expense ratio exceeding 3% and annualized active alpha below -3%. The evidence overall suggests that active management of municipal bond portfolios is not a value-enhancing activity.

Keywords: Mutual funds/passive investing/indexing; fixed income and structured finance; factor-based models; performance measurement (search for similar items in EconPapers)
Pages: 13 pages
Date: 2021-01-01
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Published in: Gurwitz, J. A., Smith, D. M. and Van de Venter, G., 2021, "Municipal Bond Mutual Fund Performance and Active Share", The Journal of Investing, 30(4), 23-35.

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