Category Archives: Active Share

Do your active returns pass the age test?

The five- and 10-year active return series relative to an appropriate benchmark is an investment industry standard.

But what lies beneath the numbers can be more telling than the numbers themselves. And there is one dimension that is frequently overlooked: how specific time periods within the series contribute to, or unfairly skew, the end results. For example, great 10-year numbers can lose their luster when it’s discovered they are being propped up by one or two uncharacteristically stellar periods early in the time series. After all, if most of the top returns occurred long ago, it’s only natural to question whether the manager can repeat that performance in the future.

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Active Portfolio or Incompatible Benchmark?

3 ways active share can help managers demonstrate the difference

prove that your high active share comes from skill and not a poorly chosen benchmark

As an active manager, you know that statistics like active share can help you quantify just how active your portfolio is. An active share of at least 60% versus your benchmark is good, and an active share in excess of 70, 80 or 90% is even better, depending on your mandate.

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Risky Business

Three must-have active risk measures every portfolio manager needs

Active Risk: 3 go-to risk measures help investment managers quantify their active contribution to returns.

You can hardly pick up a financial publication these days without being bombarded with news about portfolio risk management. Since the market downturn of 2007-2008, and despite the 5-year bull market that has followed, risk is front-and center in the minds of institutional asset managers and owners alike.

But how does one quantify risk? In this post, we demystify three go-to active risk measures—one old, one new and one that (sometimes) gets lost in the shuffle: tracking error, maximum drawdown and overconcentration/specific risk.

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Active Share: Your New Best Friend

A metric that quantifies active management, ferrets out closet indexers

Use active share to quantify your portfolio's active contribution

It has been seven years since Martijn Cremers and Antti Petajisto first introduced a new metric for determining the extent to which mutual fund managers were making active bets against their benchmark. They called the new tool “active share,” and went on to conclude that managers with an active share of 80% or higher tend to outperform their benchmarks—after fees—and they do so with persistence. Active share, they posited, is a useful tool for identifying managers that are likely to outperform.[i]

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Time to Bench the Benchmark?

A look at the debate surrounding market indices and benchmarks as a meaningful reflection of clients’ goals and manager performance.

Relative vs. Absolute Return Reporting

According to State Street’s Center for Applied Research, investors are moving away from benchmarking.

That was one of the key findings published in their 2012 study, “The Influential Investor: How Investor Behavior is Redefining Performance.” In the survey of over 3000 retail and institutional investors, asset managers, regulators and consultants, 44% of investors said they plan to move toward absolute return—and away from benchmarking—over the next 10 years, compared with 30% who will continue to focus on beating a benchmark.

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Harness the Power of the “Ps”

5 Ways to Win the Active vs. Passive Debate

As a successful active manager, your greatest asset is your unique perspective on the markets. That’s what makes you different from all the other managers out there.

The active vs. passive management debate is heating up again. Like death and taxes, this philosophic clash of the titans may be inevitable, especially during times like these, when the bull starts running after a nice, long nap.

As an asset manager, you know the academic arguments for—and against—active management. But your clients aren’t apt to be interested in hearing what Bill Sharpe has to say on the matter. What they do want is a convincing demonstration that your particular brand of active management will add value to their portfolio.

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