1

Bonds have default risk categories like AAA, BBB, etc. Bond funds often choose bonds based on these categories.

With ETFs and Mutual funds, there is a level of survivorship bias because the fund is ranked based on historic returns.

Does a similar historical survivorship bias exist in ranking bond funds? For example, if a company/nation is upgraded to A from B, then will the bonds that used to have a B rating all be upgraded, their price jump up, etc thus making certain bond ETFs return look artificially high?

3

Survivorship bias applies to hypothetical (backtested) portfolios, not real ones. An ETF (or mutual fund) reports the return attributable to its holdings (stocks or bonds) while it held them. A bond ETF holding "A" bonds may buy a bond recently upgraded from "B", but any price jump associated with the upgrade is already reflected in the purchase price and does not contribute to the ETF's reported return.

At a higher level, survivorship bias can affect the evaluation of families of ETFs and mutual funds. If underperforming funds are closed, the surviving funds will show atypically good performance. But your question does not seem to be about this.

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