This paper examines corporate bond mutual funds to explore the relation between fund size and performance and the relation between fund size and manager skill. We find a significantly negative relation between fund size and performance that is robust to various empirical specifications. Using several proxy variables we find that the negative effect of scale on performance is not associated with illiquidity effects, but we do find support for the limited attention hypothesis. Accounting for the adverse effect of size on performance, we quantify fund manager skill. Using the skill measure introduced by Berk and van Binsbergen (2015) the average bond fund manager in our sample generates nearly $3.5 million dollars in annual wealth.
