The idea that outperformance comes more easily to a fund manager managing portfolios with a larger Active Share is in fact the result of small-capitalisation biases. When such biases are excluded, Active Share has no predictive value for a manager’s performance. The size of a portfolio’s Active Share depends heavily on the composition and structure of the fund’s benchmark and a persistently large Active Share may reflect a strong bias to small-cap stocks or an excessive number of non-benchmark assets in a portfolio. We believe Active Share tells investors nothing about the systematic and unsystematic exposures in a portfolio. It should therefore be used in conjunction with other indicators.

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How active is your fund manager? Should you really care about his Active Share?