There has already been much ink, and maybe even some blood, spilled debating the merits of â??Active Shareâ? for judging an investment fund. There was the original paper, a critique of that paper written by some of my colleagues, a reasonable (which doesnâ??t mean I agree with it) response to AQRâ??s piece, and even a seriously deranged1 response to my colleaguesâ?? work (thankfully Iâ??m known for a certain aplomb and even sangfroid in such tense situations and have helped calm everyone down). I donâ??t seek to re-open this debate but, rather, to focus on one aspect of it. Admittedly itâ??s an aspect near and dear to my heart and wallet. I believe (hope) this aspect of the debate is so clear that all sides can agree. Active Share may or may not make sense for judging traditional active discretionary stock pickers (and when I say â??make senseâ? I mean on its own and versus other measures such as tracking error). However, Active Share clearly makes no sense, and is, in spirit, explicitly backwards for judging direct factor investors (or quantitative investors, or smart beta investors, or style investors, or structured investors; all of which I consider near synonyms with different marketing labels â?? I havenâ??t even come very close to covering all the possible options so let the semantic wars rage on!).
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