Active Share measures the fraction of a portfolio based on position weights that differs from the benchmark index. The Active Share measure was developed by Martijn Cremers and Antti Petajisto, both Yale professors.
A scheme that has an active share less than 60% is in effect an Index hugger. Most active funds in the world have ended up being closet indexers.
Samco believes that in the flexi cap space in India, 21 out of 24 schemes are index huggers. Out of Rs 1.93 lakh crore that the flexicap schemes manage 65% or Rs 12,5000 crore is exactly in the same proportion as the index.
The fund house recently received regulatory approval to launch its mutual fund schemes. “One of the primary reasons that active funds underperform their index is that the average equity fund manager owns far too many stocks and in effect tracks the index,” says Jimeet Modi, Founder, Samco Asset management. Jimeet believes due to this, investors get an index fund less the manager’s fees and this structure makes underperformance against the index inevitable. This phenomenon is referred to as Closet Indexing or Index Hugging.
SAMCO Mutual Fund will launch a flexicap fund, global active fund and tax saving fund soon. By disclosing daily active share investors will know that when they are paying an active fee, it’s for buying something widely different from the Index.