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Investing Blog Roundup: Active Share, Not a Great Bet

There is, at this point, roughly half a century of evidence showing that actively managed funds generally underperform their lower-cost passively managed counterparts. (And then there’s William Sharpe’s classic piece The Arithmetic of Active Management which succinctly demonstrates that the average actively managed dollar by definition will underperform the average passively managed dollar, assuming active management means higher costs.)

But back in 2009 two researchers found that there might be a way to pick those actively managed funds that will outperform: by selecting based on “active share” (essentially, how different are this fund’s holdings relative to those of its benchmark).

Sadly, that finding hasn’t really held up well. At all.

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