Patient Capital Outperformance: The Investment Skill of High Active Share Managers Who Trade Infrequently

70 Pages Posted: 21 Sep 2014 Last revised: 21 Jul 2016

See all articles by Martijn Cremers

Martijn Cremers

University of Notre Dame; ECGI

Ankur Pareek

Bucknell University, Freeman College of Management

Date Written: December 1, 2015

Abstract

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

Cremers, K. J. 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

K. J. Martijn Cremers (Contact Author)

University of Notre Dame ( email )

P.O. Box 399
Notre Dame, IN 46556-0399
United States

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Ankur Pareek

Bucknell University, Freeman College of Management ( email )

701 Moore Ave.
Lewisburg, PA 17837
United States

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