Active Share

Active share was introduced by researchers Martijn Cremers and Antti Petajisto in 2009. It is calculated by adding up the absolute differences between the weight of each holding in the fund and in the benchmark, and dividing the total by two.

For example, a fund that holds the same shares as its index in the same proportions has an active share of 0%. A fund that holds 30 shares chosen from a 500-share index, in very different weights, might have an active share of 85% or more.

Active share helps investors see whether an actively managed fund is genuinely different from its benchmark. A fund charging active fees but with low active share may be a closet indexer, closely tracking the index while charging more.

High active share is not a guarantee of good performance; it only shows that the fund differs from the index, which can lead to better or worse results. It is often used alongside tracking error, which measures how much the fund's returns differ from the benchmark's.