Bottom Up Credit Investing

This paper builds on the work of Israel et al. (2015) and Houweling and Van Zundert (2015). These papers provide a framework to construct multi-factor portfolios and calculate their performance for corporate bonds. This paper contributes to the literature by testing several different implementations for a given factor, whether combining different implementations for a given factor improves performance and whether factor timing yields better returns than an equal-weighted multi-factor portfolio. This analysis is performed on an extensive data set consisting of US investment grade, US high-yield, European investment grade and European high-yield indices. This paper finds that the (multi-)factor portfolios generally improve the risk-adjusted returns compared to the benchmark.