Active Share and the Predictability of the Performance of Separate Accounts
40 Pages Posted: 20 Apr 2020 Last revised: 15 Sep 2021
Date Written: September 15, 2021
Separate accounts are a large and unique, but understudied, part of the investment management industry. Within our sample, on net, the average separate account underperforms, but for those with high active share, we find positive performance persistence. Among high active share separate accounts, a portfolio of those with strong past performance has a subsequent net alpha of 1.38% per year (t-stat = 2.11). That result strengthens when return dispersion is high and among separate accounts with a small cap style, a fundamental investment approach, or lower cash holdings. These results provide out of sample support for the predictive utility of active share.
Keywords: active share, separate account, mutual fund, alpha, performance, persistence, out-of-sample, predictability
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