Active Share and Mutual Fund Performance

47 Pages Posted: 2 Oct 2010 Last revised: 17 Jan 2013

See all articles by Antti Petajisto

Antti Petajisto

Brooklyn Investment Group; New York University (NYU) - Department of Finance; Yale School of Management

Date Written: January 15, 2013


I sort domestic all-equity mutual funds into different categories of active management using Active Share and tracking error. I find that over my sample period until the end of 2009, the most active stock pickers have outperformed their benchmark indices even after fees and transaction costs. In contrast, closet indexers or funds focusing on factor bets have lost to their benchmarks after fees. The same long-term performance patterns held up over the 2008-2009 financial crisis, and they also hold within market cap styles. Closet indexing increases in volatile and bear markets and has become more popular after 2007. Cross-sectional dispersion in stock returns positively predicts average benchmark-adjusted performance by stock pickers.

Keywords: Active Share, Tracking Error, Closet Indexing

JEL Classification: G10, G14, G20, G23

Suggested Citation

Petajisto, Antti, Active Share and Mutual Fund Performance (January 15, 2013). Available at SSRN: or

Antti Petajisto (Contact Author)

Brooklyn Investment Group ( email )

Brooklyn, NY 11201
United States


New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0378 (Phone)


Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States


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