Recently, asset owners and investors have been calling for managers to examine the active share, or fraction of portfolio that differs from the benchmark, of their portfolios. The rationale behind this metric, thought to be an indicator of performance, is that the less active a portfolio, or the closer a manager is to his or her benchmark, the smaller the degree of potential outperformance – and the harder to justify fees.
In this month's Emerging Ideas webcast, Dieter Vandenbussche, Senior Director of Research with Axioma, explores how the choices quantitative portfolio managers make in defining their portfolio optimization strategy can impact the active share of their portfolios.
Factors like portfolio diversification, alpha process, selected constraints, and benchmarks can all markedly affect active share – which is why active share should not be used in isolation. Rather, Vandenbussche explains, it should complement measures like tracking error and specific risk, in order to build a complete picture.
Watch the full active share webcast here.