Enter the percentage weights for your portfolio and its benchmark index for up to 10 securities. Leave rows blank if not needed. Ensure total portfolio and benchmark weights sum to 100% for accuracy.
Security Name (Optional)
Portfolio Weight (%)
Benchmark Weight (%)
function calculateActiveShare() {
var sumAbsoluteDifferences = 0;
var numRows = 10; // Number of hardcoded rows
for (var i = 1; i <= numRows; i++) {
var portfolioWeightInput = document.getElementById("portfolioWeight_" + i);
var benchmarkWeightInput = document.getElementById("benchmarkWeight_" + i);
var portfolioWeight = parseFloat(portfolioWeightInput.value);
var benchmarkWeight = parseFloat(benchmarkWeightInput.value);
// Handle cases where one or both inputs might be empty or invalid
var currentPortfolioWeight = isNaN(portfolioWeight) ? 0 : portfolioWeight;
var currentBenchmarkWeight = isNaN(benchmarkWeight) ? 0 : benchmarkWeight;
// Weights are percentages, convert to decimal for calculation
sumAbsoluteDifferences += Math.abs((currentPortfolioWeight / 100) – (currentBenchmarkWeight / 100));
}
var activeShare = 0.5 * sumAbsoluteDifferences * 100; // Multiply by 100 to display as percentage
var resultDiv = document.getElementById("result");
if (isNaN(activeShare)) {
resultDiv.innerHTML = "Please enter valid numbers for weights.";
resultDiv.style.backgroundColor = '#f8d7da';
resultDiv.style.borderColor = '#f5c6cb';
resultDiv.style.color = '#721c24';
} else {
resultDiv.innerHTML = "
Calculated Active Share: " + activeShare.toFixed(2) + "%
";
if (activeShare >= 80) {
resultDiv.innerHTML += "This indicates a highly active portfolio, significantly different from its benchmark. This is typical for truly active managers.";
} else if (activeShare >= 60) {
resultDiv.innerHTML += "This suggests a moderately active portfolio, showing some deviation from the benchmark.";
} else { // activeShare < 60
resultDiv.innerHTML += "This indicates a low active share, suggesting the portfolio's holdings are very similar to its benchmark. This might be characteristic of a 'closet indexer'.";
}
resultDiv.style.backgroundColor = '#e9f7ef';
resultDiv.style.borderColor = '#d4edda';
resultDiv.style.color = '#155724';
}
}
Understanding Active Share in Portfolio Management
Active Share is a crucial metric for investors seeking to understand how actively a fund manager is truly managing a portfolio relative to its benchmark index. Developed by Martijn Cremers and Antti Petajisto, it quantifies the percentage of a portfolio's holdings that differ from its benchmark index.
What is Active Share?
In simple terms, Active Share measures the degree to which a portfolio deviates from its benchmark. A fund with an Active Share of 0% would perfectly replicate its benchmark, essentially being an index fund. Conversely, a fund with an Active Share of 100% would have no overlap with its benchmark whatsoever, meaning it holds entirely different securities or has completely different weightings for common securities.
The core idea is to distinguish between genuinely active managers who aim to outperform by making significant deviations from the index, and "closet indexers" who charge active management fees but largely mimic the index, offering little potential for outperformance beyond the benchmark.
Portfolio Weighti: The percentage weight of security 'i' in the portfolio.
Benchmark Weighti: The percentage weight of security 'i' in the benchmark index.
Σ: The summation across all securities held in either the portfolio or the benchmark.
|…|: Denotes the absolute value of the difference.
The sum of the absolute differences is then multiplied by 0.5 because each difference is counted twice (once as an overweight and once as an underweight relative to the total deviation). The result is typically expressed as a percentage.
Interpreting Active Share Values
High Active Share (typically ≥ 80%): Indicates a highly active portfolio. The manager is making significant bets that differ from the benchmark. This type of fund has the potential for significant outperformance (or underperformance) relative to the benchmark.
Moderate Active Share (e.g., 60% – 80%): Suggests a moderately active approach. The portfolio has noticeable differences from the benchmark but might still retain some core similarities.
Low Active Share (typically < 60%): Points to a portfolio that closely resembles its benchmark. Funds with low active share are often referred to as "closet indexers." Investors pay active management fees for what is essentially an index-like return, which can be a poor value proposition.
Limitations and Considerations
While Active Share is a powerful tool, it's not without its limitations:
Doesn't Measure Skill: A high Active Share indicates active management, but it doesn't guarantee that the manager's active decisions will lead to outperformance.
Factor Tilts: A fund might have a high Active Share due to a consistent tilt towards certain factors (e.g., value, growth, small-cap) rather than specific stock picking.
Tracking Error: Active Share is related to, but distinct from, tracking error. Tracking error measures the volatility of the difference in returns between a portfolio and its benchmark, while Active Share measures differences in holdings.
Data Availability: Calculating Active Share requires detailed holdings data for both the portfolio and its benchmark, which isn't always readily available or easy to compile.
Using the Active Share Calculator
Our calculator simplifies the process of determining a portfolio's Active Share. Simply input the percentage weight of each security in your portfolio and its corresponding weight in the benchmark index. If a security is present in one but not the other, enter '0' for the missing weight. The calculator will sum the absolute differences and provide you with the Active Share percentage, along with an interpretation of the result.
Example Calculation
Let's consider a simplified example with a portfolio and its benchmark:
Security
Portfolio Weight (%)
Benchmark Weight (%)
|Pi – Bi|
Stock A
10%
5%
|10 – 5| = 5%
Stock B
15%
10%
|15 – 10| = 5%
Stock C
5%
0%
|5 – 0| = 5%
Stock D
0%
20%
|0 – 20| = 20%
Stock E
0%
65%
|0 – 65| = 65%
Cash
70%
0%
|70 – 0| = 70%
Total
100%
100%
Sum = 170%
Using the formula:
Active Share = 0.5 × (170% / 100) × 100 = 85%
An Active Share of 85% indicates a highly active portfolio, suggesting the manager is making significant, independent investment decisions.