Active share may be a useful way of comparing funds, says Sam Liddle, but it does not necessarily reflect manager skill and paying too much attention to the idea could even introduce risks for investors
Since the term was first coined by two finance professors in 2006, ‘active share' has grown to be an important consideration for fund selectors. As it measures how much an equity portfolio's underlying holdings differ from its benchmark, investors often use it as a guide to potential future outperformance as well as to decide whether a fund justifies its active management fees - or if it is really a ‘closet tracker'. But is high active share the best way to measure a manager's skill - and could too paying too close attention to it actually pose some risks to investors? When it come...
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