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Municipal Bond Mutual Fund Performance and Active Share

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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.

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  • Joshua A. Gurwitz & David M. Smith & Gerhard Van de Venter, 2021. "Municipal Bond Mutual Fund Performance and Active Share," Published Paper Series 2021-2, Finance Discipline Group, UTS Business School, University of Technology, Sydney.
    • Handle: RePEc:uts:ppaper:2021-2
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    References listed on IDEAS

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    6. Martijn Cremers & Antti Petajisto, 2006. "How Active is Your Fund Manager? A New Measure That Predicts Performance," Yale School of Management Working Papers amz2370, Yale School of Management, revised 01 May 2009.
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