Active Share

Know how to effectively evaluate equity investment performance against a benchmark with active share.

Active vs. indexing
Actively managed stock funds can play an important role in an investor’s portfolio, but selecting the right manager is critical. Skilled active fund managers, who follow a disciplined process, have a patient investment approach, and select holdings that diverge from their benchmark index, have demonstrated the ability to generate returns that outpace the fund’s index. This can provide valuable diversification when used with passively managed investments designed to track an index.

What is active share?
“Active share” is a mathematical measure of the difference between the holdings of a fund and its index. It calculates the percentage of a portfolio’s holdings and weights that deviate from the holdings and weights in the corresponding benchmark. A fund with 0% active share is essentially a replica of the index. A fund with 100% active share would have no securities in common with the index.

Manager style by active share range1

Active share image 1a
Research suggests that funds with an active share of 60% or less tend to generate very similar returns to the index, but may charge a higher fee relative to, for example, an index fund.3 These types of funds are sometimes referred to as “closet indexers.”2

A fund with high active share has less in common with its index1

Active share image 2d

What about fees?
Funds with higher active share can add valuable diversification to a portfolio, and have shown the potential for higher returns. Funds with these potential benefits may justify a higher fee. Active share, at its core, is simply a diagnostic tool for an investor to determine what they are paying for when considering an actively managed fund.

Active share and performance
Higher active share may contribute to increased return potential, but research has shown that manager skill – and patience – are also key factors for achieving benchmark-beating returns over the long term. Skilled managers who demonstrate conviction through high active share and patient investment strategies have historically been able to generate differentiated sources of long-term outperformance.1

Active share is one useful tool among many others when evaluating mutual fund manager skill. Although investors should not conclude that fund managers with high active share will always deliver benchmarkbeating returns. These managers may also underperform the index. For these reasons, investors should also consider other risk and performance metrics when choosing a manager. Different market capitalizations and investment categories may also affect active share.


1 Martijn Cremers and Ankur Pareek, “Patient Capital Outperformance: The Investment Skill of High Active Share Managers Who Trade Infrequently,” The Journal of Financial Economics, December 2015. Study analyzed a sample of equity mutual funds from 1990 - 2013 and institutional portfolios from 1984 - 2012. Results may vary when analyzing different time periods.

2 Portfolio managers who employ a strategy similar to the benchmark while also achieving similar returns, but charge a fee for active management.

3 Antii Petajisto, " Active Share and Mutual Fund Performance," Financial Analysts Journal, 2013.

RISKS: All investing involves risk, including the risk of loss. There is no assurance that any investment will meet its performance objectives or that losses will be avoided. Equity mutual funds may be volatile and can decline significantly in response to broad market and economic conditions. High active share is not a guarantee of outperformance or positive performance. Unlike passive investments, there are no indexes that an active investment attempts to track or replicate. Thus, the ability of an active investment to achieve its objectives will depend on the effectiveness of the investment manager. Diversification does not guarantee a profit or protect against a loss.

Past performance is no guarantee of, and not necessarily indicative of, future results.

This material is provided for informational purposes only and should not be construed as investment advice. The views and opinions expressed may change based on market and other conditions. • This document may contain references to third party copyrights, indexes, and trademarks, each of which is the property of its respective owner. Such owner is not affiliated with Natixis Investment Managers or any of its related or affiliated companies (collectively “Natixis”) and does not sponsor, endorse or participate in the provision of any Natixis services, funds or other financial products.

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