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Swedroe: Active Share No Indicator Of Outperformance

I was recently asked to comment on Jason Voss’ CFA Institute article “Is Active Management Dead? Not Even Close.” The author claims that while most active managers fail to achieve superior risk-adjusted returns, it’s possible to identify the future winners by examining metrics such as active share. “Research shows a fund that consistently pursues a narrowly defined strategy, takes high conviction positions, and experiences considerable tracking error outperforms over the long-run.”


Research On Active Share
To address that claim, we can review the literature. In his December 2010 paper, “Active Share and Mutual Performance,” Antti Petajisto claimed he had found what might be called the Holy Grail of investing. Active share is a measure of how much a fund’s holdings deviate from its benchmark index, and the funds with the highest active shares have the best…

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