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Active Share. Another dimension for assessing active management. Active portfolio management. Active stock picking: will deviate from the benchmark For the fees you pay, how active is the manager? Tracking error Active share. Tracking error. Standard deviation of ( r P – r B )

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Active Share

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Active share

Active Share

Another dimension for assessing active management


Active portfolio management

Active portfolio management

  • Active stock picking: will deviate from the benchmark

  • For the fees you pay, how active is the manager?

    • Tracking error

    • Active share


Tracking error

Tracking error

  • Standard deviation of (rP –rB)

  • Returns-based, uses historical returns of the portfolio and its benchmark

  • Compares overall portfolio returns to overall benchmark returns


Active share1

Active share

  • A holdings-based measure of the degree of active management

    • Cremers and Petajisto (RFS 2009)*

  • Absolute differences in portfolio weights for all securities in the portfolio compared to the benchmark

  • How active is the manager in taking individual stock positions?

*How Active Is Your Fund Manager? A New Measure That Predicts Performance

Review of Financial Studies, 2009, 22(9):3329-3365


Basic idea

Basic idea

  • $100 to invest in either an index fund or an active portfolio

  • 20% long positions; 20% short positions on the index

  • If sum up the over/under-weights, will get zero. So take the absolute value


Active share2

Active share

  • Definition

    where n = number of stocks in the index

  • Divide the sum of the portfolio weight differences by 2, so that active share lies between zero and 100% for long-only portfolios

  • (For hedge funds, use of leverage and net short positions can cause Active Share > 100%)


Active share3

Active share

  • The higher the active share,  active stock picking

    • If Active Share = 60% 40% overlap with the index

    • If Active Share = 100%  0% overlap with the index

  • Note: equal weight, simply taking a count of the extent of active positions


Case study active share and size aum

Case study: Active share and size (AUM)

Source: Petajisto (FAJ 2013)


Case study fidelity magellan fund

Case study: Fidelity Magellan Fund

Source: Petajisto (FAJ 2013)


Active share quintiles and fund performance

Active share quintiles and fund performance


Industry is taking note

Industry is taking note

  • Active share is provided by Morningstar Direct for each fund in its database

  • Exercise: what is Mawer’s Q3 active share?


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