Manager Skill – Does High Active Share Make A Better Portfolio?
Active share is useful in evaluating whether an active manager has a portfolio that is positioned to exceed the benchmark. Higher active share may represent an increased opportunity for larger excess returns. However, in many cases a high active share may also be more inclined to severe drawdowns. Previous seminal academic research has shown that active share is positively correlated to tracking error but there has been no evidence to suggest that a high active share gives any indication of manager skill.
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