Skip to main content

Main menu

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JPM
    • Awards
    • Editorial Board
    • Published Ahead of Print (PAP)
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

User menu

  • Sample our Content
  • Request a Demo
  • Log in

Search

  • ADVANCED SEARCH: Discover more content by journal, author or time frame
The Journal of Portfolio Management
  • IPR Logo
  • About Us
  • Journals
  • Publish
  • Advertise
  • Videos
  • Webinars
  • More
    • Awards
    • Article Licensing
    • Academic Use
  • Sample our Content
  • Request a Demo
  • Log in
The Journal of Portfolio Management

The Journal of Portfolio Management

ADVANCED SEARCH: Discover more content by journal, author or time frame

  • Home
  • Current Issue
  • Past Issues
  • Videos
  • Submit an article
  • More
    • About JPM
    • Awards
    • Editorial Board
    • Published Ahead of Print (PAP)
  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

Using Active Share to Evaluate Single- and Multi-Manager Portfolios

Mark Higgins, Matthew Sturdivan, Janelle Booth and Claire Illo
The Journal of Portfolio Management Manager Fund Selection 2020, jpm.2020.1.134; DOI: https://doi.org/10.3905/jpm.2020.1.134
Mark Higgins
is a senior investment consultant and principal at RVK, Inc. in Portland, OR
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
Matthew Sturdivan
is a manager research director at RVK, Inc. in Portland, OR
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
Janelle Booth
is a consultant at RVK, Inc. in Portland, OR
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
Claire Illo
is a manager research analyst at RVK, Inc. in Portland, OR.
  • Find this author on Google Scholar
  • Find this author on PubMed
  • Search for this author on this site
  • Article
  • Info & Metrics
  • PDF (Subscribers Only)
Loading

Click to login and read the full article.

Don’t have access? Click here to request a demo 
Alternatively, Call a member of the team to discuss membership options
US and Overseas: +1 646-931-9045
EMEA: +44 0207 139 1600

Abstract

Active share is a statistic that describes the degree to which the holdings of an investment fund differ from the holdings of the fund’s benchmark. Practitioners and academics have produced numerous papers on active share; some portray it as a powerful metric that can be used to isolate effective active managers, whereas others highlight its imperfections and warn of its limited utility. The authors of this article evaluate how active share can be used to guide individual manager selection decisions and to assist in ongoing manager monitoring. After considering multiple perspectives, the authors assert that active share is indeed a useful statistic for evaluating investment strategies, but investors must take into account several limitations to use it appropriately. They also present a new application of active share by employing it at the asset class level. Specifically, they use active share to evaluate multimanager, US large-cap equity portfolios. The authors chose US large-cap equity because this subasset class is widely viewed as highly efficient, and it provides a particularly robust dataset for analysis. With this exercise, the authors demonstrate how investors can apply active share to help determine the optimal number of managers to include in a multimanager portfolio. The intent of the article is to help investors improve both the quality of individual manager selection decisions and the portfolio construction process for multimanager portfolios.

TOPICS: Portfolio management/multi-asset allocation, manager selection, performance measurement

Key Findings

  • • In an effort to diversify the risk of adverse manager selection, institutional investors often hire multiple investment managers to fill their allocations to various asset classes. However, many investors are subsequently disappointed with the results because the benefits of diversification are often exceeded by the costs in terms of active share dilution, higher investment management fees, and greater oversight requirements.

  • • Using large-cap US equity as a test case, this article demonstrates how active share can help quantify the impact of manager diversification on active management efficiency in multimanager portfolios. In addition, the article quantifies the incremental fee impact of adding investment managers to the portfolio. The results demonstrate how active share can decline rapidly after a relatively small number of managers is added to a large-cap equity portfolio. Simultaneously, both indirect and direct costs of portfolio oversight steadily and meaningfully increase with each new manager.

  • • The results suggest that investors should conduct a thorough cost–benefit analysis before determining the number of investment managers to include in a multimanager portfolio. To support such endeavors, we encourage investors to quantify the incremental impact of additional managers on active share, investment management fees, and general oversight requirements. After quantifying these costs, investors can weigh them against the potential diversification benefits and identify the number of managers that provides the optimal balance.

  • © 2020 Pageant Media Ltd
View Full Text

Don’t have access? Click here to request a demo

Alternatively, Call a member of the team to discuss membership options

US and Overseas: +1 646-931-9045

UK: 0207 139 1600

Log in using your username and password

Forgot your user name or password?
Next
Back to top

Explore our content to discover more relevant research

  • By topic
  • Across journals
  • From the experts
  • Monthly highlights
  • Special collections

In this issue

The Journal of Portfolio Management: 47 (4)
The Journal of Portfolio Management
Vol. 47, Issue 4
Multi-Asset Special Issue 2021
  • Table of Contents
  • Index by author
  • Complete Issue (PDF)
Print
Download PDF
Article Alerts
Sign In to Email Alerts with your Email Address
Email Article

Thank you for your interest in spreading the word on The Journal of Portfolio Management.

NOTE: We only request your email address so that the person you are recommending the page to knows that you wanted them to see it, and that it is not junk mail. We do not capture any email address.

Enter multiple addresses on separate lines or separate them with commas.
Using Active Share to Evaluate Single- and Multi-Manager Portfolios
(Your Name) has sent you a message from The Journal of Portfolio Management
(Your Name) thought you would like to see the The Journal of Portfolio Management web site.
CAPTCHA
This question is for testing whether or not you are a human visitor and to prevent automated spam submissions.
Citation Tools
Using Active Share to Evaluate Single- and Multi-Manager Portfolios
Mark Higgins, Matthew Sturdivan, Janelle Booth, Claire Illo
The Journal of Portfolio Management Feb 2020, jpm.2020.1.134; DOI: 10.3905/jpm.2020.1.134

Citation Manager Formats

  • BibTeX
  • Bookends
  • EasyBib
  • EndNote (tagged)
  • EndNote 8 (xml)
  • Medlars
  • Mendeley
  • Papers
  • RefWorks Tagged
  • Ref Manager
  • RIS
  • Zotero
Save To My Folders
Share
Using Active Share to Evaluate Single- and Multi-Manager Portfolios
Mark Higgins, Matthew Sturdivan, Janelle Booth, Claire Illo
The Journal of Portfolio Management Feb 2020, jpm.2020.1.134; DOI: 10.3905/jpm.2020.1.134
del.icio.us logo Digg logo Reddit logo Twitter logo CiteULike logo Facebook logo Google logo LinkedIn logo Mendeley logo
Tweet Widget Facebook Like LinkedIn logo

Jump to section

  • Article
    • Abstract
    • USING ACTIVE SHARE TO EVALUATE INDIVIDUAL MANAGERS
    • USING ACTIVE SHARE TO EVALUATE MULTI-MANAGER PORTFOLIOS
    • CONCLUSION
    • ADDITIONAL READING
    • Disclaimer
    • REFERENCES
  • Info & Metrics
  • PDF (Subscribers Only)
  • PDF (Subscribers Only)

Similar Articles

Cited By...

  • No citing articles found.
  • Google Scholar
LONDON
One London Wall, London, EC2Y 5EA
United Kingdom
+44 207 139 1600
 
NEW YORK
41 Madison Avenue, New York, NY 10010
USA
+1 646 931 9045
pm-research@pageantmedia.com
 

Stay Connected

  • Follow IIJ on LinkedIn
  • Follow IIJ on Twitter

MORE FROM PMR

  • News
  • Awards
  • Investment Guides
  • Videos
  • About PMR

INFORMATION FOR

  • Academics
  • Agents
  • Authors
  • Content Usage Terms

GET INVOLVED

  • Advertise
  • Publish
  • Article Licensing
  • Contact Us
  • Subscribe Now
  • Sign In
  • Update your profile
  • Give us your feedback

© 2021 Pageant Media Ltd | All Rights Reserved | ISSN: 0095-4918 | E-ISSN: 2168-8656

  • Site Map
  • Terms & Conditions
  • Privacy Policy
  • Cookies