Another Use for Active Share – Understanding Portfolio Exposures
Journal of Investing Vol 29, Issue 5 (October), 2020 DOI: https://doi.org/10.3905/joi.2020.1.149
Posted: 6 May 2020 Last revised: 25 Sep 2020
Date Written: September 23, 2020
Abstract
We show how active share can be decomposed into segment and stock-specific exposures to create an active share risk profile. The method is demonstrated for global equity portfolios by attributing active share into contributions from country, sector, stock-specific, and non-equity positions within portfolios. Active share risk profiles can be used to identify the underlying sources of benchmark-relative risk within a portfolio both for a point in time and over time, and to compare the exposures in a portfolio relative to competitors. The method is straightforward to implement and may form a useful part of the toolkit for understanding benchmark-relative risk exposures within actively managed portfolios.
Keywords: Active share, active portfolio management, risk management, portfolio construction
JEL Classification: G11, G23
Suggested Citation: Suggested Citation
Geoffrey J. Warren
Australian National University (ANU) - Research School of Finance, Actuarial Studies and Statistics ( email )
CBE Building 26C
Kingsley Sreet, Acton
Canberra, ACT 0200
Australia
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