Assessing the performance of active fund managers in the European high yield bond space

Abstract

This dissertation undertakes an investigation to observe whether active fund managers in the European high yield bond market can deliver sustained excess returns in relation to a passive alternative. The European high yield market through its liquidity, concertation and sensitivity to prevailing conditions presents both opportunities and challenges to active managers. This research targets the underrepresented area of performance attribution within the European high yield market within academic literature through undertaking a quantitative analysis on nine actively managed European high yield funds and a singular passive alternative across a six-year time period. The analysis undertakes risk adjust metrics, drawdown and recovery analysis along with an examination of option adjusted spread behaviour. This is reviewed in the context of broader ECB policy rates, default rates and credit spreads to identify the market conditions most conducive to alpha generation. Ultimately the study yields that alpha generation is periodic rather than persistent, with active managers only outperforming the passive ETF during dislocated market phases. These episodic bursts of outperformance highlight that active management can add value under certain conditions, yet sustained alpha remains elusive.