This article examines the extent to which active returns of bond funds reflect exposure to common systematic risk factors rather than manager-specific alpha. Using a global sample of fixed-income funds across US, Global, and Euro markets over the period 2015–2024, we document strong co-movement in active returns, with roughly 90% of funds exhibiting positive beta relative to their peers’ average performance. For Aggregate and Corporate bond funds, this co-movement is primarily explained by structurally negative exposure to duration risk and positive exposure to credit spread risk, consistent with managers underweighting lower-yielding government securities and overweighting higher-yielding credit instruments. These exposures are strongly related to active risk and explain more than half of the cross-sectional variation in average active returns. Additional factors such as exposure to contingent capital securities, yield curve positioning, and participation in new issuance markets provide only limited incremental explanatory power. High-Yield funds exhibit different behavior, with evidence suggesting that managers often reduce credit exposure relative to their benchmarks. The results indicate that a substantial portion of bond fund outperformance reflects systematic positioning rather than purely security selection skill. These findings have important implications for the interpretation of asset pricing, fund evaluation, and portfolio construction. Performance rankings may partly reflect differences in risk exposure rather than manager skill, and diversification across multiple managers may be overstated when funds share similar factor exposures. Overall, the results highlight the importance of understanding the drivers of active risk when evaluating the performance and diversification benefits of active bond management.
Blitz et al. (Sat,) studied this question.