70 Pages Posted: 21 Sep 2014 Last revised: 21 Jul 2016
Date Written: December 1, 2015
Among high Active Share portfolios – whose holdings differ substantially from their benchmark – only those with patient investment strategies (with holding durations of over 2 years) on average outperform, over 2% per year. Funds trading frequently generally underperform, including those with high Active Share. Among patient funds, separating closet index from high Active Share funds matters, as low Active Share funds on average underperform even with patient strategies. Our results suggest that U.S. equity markets provide opportunities for longer-term active managers, perhaps because of the limited arbitrage capital devoted to patient and active investment strategies.
The online appendix to this paper is available at http://ssrn.com/abstract=2498743.
Keywords: Performance, Active Share, Mutual Funds, Institutional Portfolios, 13F, Fund Duration, Turnover
JEL Classification: G12, G24
Suggested Citation: Suggested Citation
Cremers, Martijn and Pareek, Ankur, Patient Capital Outperformance: The Investment Skill of High Active Share Managers Who Trade Infrequently (December 1, 2015). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2498743 or http://dx.doi.org/10.2139/ssrn.2498743
By Andrew Ang