A mandatory call?
That fund groups have been more open about quoting their active share this year is certainly of use to fund pickers; Neptune’s CEO Robin Geffen has even gone so far as to call on the FSA to make it mandatory.
Still, Richard Philbin, CIO at Harwood Multi-Manager, mirrors Murray’s views that, in isolation, such data is of limited use.
“There is nothing wrong with using active share as a measure of your willingness to take bets but the joys of lies, damned lies, and statistics is you can make anything look good, bad or indifferent,” he asserts.
“BP and Shell make up 15% of the FTSE and, if you decide not to have BP and put 15% in Shell your tracking error is going to be very low because you have a market weight. The two firms are highly correlated with each other, but your active share is going to be massive.”
Ultimately, says Philbin, this is about building a diversified portfolio and these measures are just a different way of demonstrating how you do it.
“Tracking error and active share are two ways, as is Sortino ratio and alpha. In the 1980s and 90s beta was another measurement in vogue. The reason these are there is because they add some value, but as a multi-asset manager you learn that the statistics relied on today are going to be very different to the statistics of tomorrow.”
