Funds & wrappers
Active share
How much a fund’s holdings differ from its benchmark, as a percentage.
How it works
A fund identical to the index has zero active share; one with no overlap has 100%. It measures how much of the portfolio is a genuine departure from the benchmark.
It matters because a fund charging active fees while closely tracking an index is selling something it is not delivering.
Where it misleads people
Closet indexing — high fees on a portfolio that barely differs from the index — is mathematically almost certain to underperform. Active share below about 60% is the usual warning threshold.
Related terms
- Active managementChoosing holdings deliberately in an attempt to beat a benchmark.
- Tracking errorHow much a portfolio’s returns deviate from its benchmark, measured as the volatility of the difference.
- Expense ratioThe annual percentage of your money a fund takes to cover its running costs.
- BenchmarkThe index or reference portfolio you measure yourself against, to see whether your decisions added anything.
More in Funds & wrappers
- Cash drag
- Distribution
- Transaction costs
- ETF
- Target-date fund
- Synthetic ETF
- Factor investing
- Private equity
All 25 Funds & wrappers terms · The full glossary, 433 terms
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