Benchmarking Australian fixed interest fund performance: finding the optimal factors

Authors: Soucik, Victor¹; Allen, David E.²

Source: Accounting and Finance, Volume 46, Number 5, December 2006 , pp. 865-898(34)

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Abstract:

In this paper, we analyse the performance of Australian fixed interest managed funds and assess multiple benchmarks through which such performance can be reliably measured. We examine the effectiveness of seven indices of bond performance, as well as factors impacting on fixed interest asset values and, hence, returns, including interest rate fluctuations, economic fundamentals, maturity risk, default risk and cross-market influences. We test all combinations of factors in cross-section and time series to find the optimum benchmark. The results, consistent across time, show that a correct combination of a fund-based market variable, a mixture of interest rate factors and economic factors as well as a proxy for movements in the equity markets yield the optimal benchmark.

Keywords: Performance measure; Benchmark; Managed funds; Fixed interest funds; G10; G12; G24

Document Type: Research article

DOI: http://dx.doi.org/10.1111/j.1467-629X.2006.00188.x

Affiliations: 1: Graduate School of Management, University of Western Australia, Crawley, 6009, Australia 2: Edith Cowan University, Joondalup, 6027, Australia

Publication date: 2006-12-01