Abstract

https://ssrn.com/abstract=2860356
 


 



Active Share and the Three Pillars of Active Management: Skill, Conviction and Opportunity


Martijn Cremers


University of Notre Dame

December 28, 2016

Financial Analysts Journal, Forthcoming

Abstract:     
We introduce a new formula for Active Share that emphasizes that a fund’s Active Share is only reduced through overlapping holdings with its benchmark. Next, we relate Active Share to the fund manager’s individual stock picking skill, conviction and opportunity. We show why and how to adjust the expense ratio for the level of Active Share and the cost of investing in the benchmark. We conclude that Active Share matters for actively managed funds: investors should not pay (too) much for low Active Share funds which generally underperform, there is no evidence that high Active Share funds as a group have underperformed, while patient managers with high Active Share have been quite successful.

Online appendix can be found at: https://ssrn.com/abstract=2891047

Number of Pages in PDF File: 30

Keywords: Active Share, mutual funds, costs, style, patience, fund holding duration


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Date posted: October 28, 2016 ; Last revised: December 31, 2016

Suggested Citation

Cremers, Martijn, Active Share and the Three Pillars of Active Management: Skill, Conviction and Opportunity (December 28, 2016). Financial Analysts Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2860356 or http://dx.doi.org/10.2139/ssrn.2860356

Contact Information

K. J. Martijn Cremers (Contact Author)
University of Notre Dame ( email )
P.O. Box 399
Notre Dame, IN 46556-0399
United States
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