Benchmarking Australian Fixed Interest Fund Performance: Finding the Optimal Factors
Faculty of Business and Law
School of Accounting, Finance and Economics
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.