Defining Activeness: Active Share, Risk Share & Factor Share

24 Pages Posted: 12 Dec 2017 Last revised: 8 Jan 2018

See all articles by Emlyn James Flint

Emlyn James Flint

Legae Peresec; Department of Actuarial Science, University of Cape Town

Anthony Seymour

University of Cape Town (UCT)

Florence Chikurunhe

Peregrine Securities

Date Written: December 8, 2017

Abstract

This paper tackles a core question of portfolio management: How ‘active’ is an active portfolio? To answer this question holistically, we generalise the idea of Active Share by keeping the same calculation methodology but substituting in different types of portfolio and benchmark ‘weights’. In particular, we introduce the idea of Risk Share – based on asset risk contributions – and Factor Share – based on either factor style exposures or factor risk contributions. We describe these new metrics in a general multi-factor market framework and, using a set of simulated random portfolios of increasing activeness, explore some of the relationships between them and with other common fund performance measures. Finally, we conduct an empirical 'activeness' analysis on a set of South African equity funds. In both the simulated and empirical analyses, we find that the trio of Active Share, Risk Share and Factor Share provides one with a comprehensive, standardised means for easily assessing across multiple dimensions how a portfolio truly differs from its benchmark.

Keywords: active share, risk share, factor share, active management, risk decomposition, risk attribution, factor portfolios, returns based style analysis

JEL Classification: C01, C02, C21, C22, C31, C32, C51, C53, C58, C61

Suggested Citation

Flint, Emlyn James and Seymour, Anthony and Chikurunhe, Florence, Defining Activeness: Active Share, Risk Share & Factor Share (December 8, 2017). Available at SSRN: https://ssrn.com/abstract=3084637 or http://dx.doi.org/10.2139/ssrn.3084637

Emlyn James Flint (Contact Author)

Legae Peresec ( email )

15 Cavendish Street
Claremont
Cape Town, Western Cape 7700
South Africa
27117227556 (Phone)

HOME PAGE: http://www.legaeperesec.co.za

Department of Actuarial Science, University of Cape Town ( email )

Actuarial Science Section, University of Cape Town
Private Bag X3, Rondebosch
Cape Town, Western Cape 7701
South Africa
+27 21 650 2475 (Phone)

Anthony Seymour

University of Cape Town (UCT) ( email )

Private Bag X3
Rondebosch, Western Cape 7701
South Africa

Florence Chikurunhe

Peregrine Securities ( email )

21 Main Road
Claremont
Cape Town, Western Cape 7700
South Africa
+27117227551 (Phone)

HOME PAGE: http://www.peregrine.co.za

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