A new method of measuring active fund management shows it beating benchmarks. Marijn Cremers and Antti Petajisto, researchers from the Yale School of Management, published a study earlier this month based a measure they call "Active Share", which is simply the percentage of a fund's holdings that are different from its benchmark index. According to their research, higher Active Share leads to better performance, across all fund sizes.

"Funds with the highest Active Share significantly outperform their benchmarks both before and after expenses," Cremers and Petajisto explain, "while funds with the lowest Active Share underperform after expenses."

The researchers explain this result by speculating that "most active stock pickers [can] generate a positive alpha," because "there are small inefficiencies in the pricing of individual stocks".

Cremers and Petajisto ultimately recommend that investor look to "funds with the highest Active Share, smallest assets, and best one-year performance." 

Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE