Term · Portfolio & Execution
Active Share
In briefActive Share indicates how far a portfolio deviates from its benchmark, thereby showing genuine active stock selection rather than index-hugging. For small caps this matters because the pursuit of real alpha typically means noticeably departing from the index.
Definition
Share of a portfolio that deviates from the benchmark. A high active share shows genuine active stock selection rather than index-hugging.
How it is calculated
Formula. Active Share = 0.5 × sum of |portfolio weight − benchmark weight|.
Why it matters for small caps
The concept is relevant in the small-cap space because genuine alpha-seeking usually requires a clear deviation from the index.
Common misreadings
- It is confused with outperformance; a high active share only increases distinctiveness, not necessarily quality.
In the process
Frequently asked
What is Active Share?
It measures the share of a portfolio that differs from the benchmark. A high value stands for active, index-distant stock selection.
How is Active Share calculated?
You sum the absolute weight differences between portfolio and benchmark and halve the result. This produces a measure of deviation from the index.
Does a high Active Share automatically mean outperformance?
No, a high value only increases distinctiveness from the benchmark, not automatically the quality. Deviation alone is no guarantee of better returns.
Related terms
Sources
Primary
Cremers/Petajisto – Originalarbeit zu Active Share
https://papers.ssrn.com/sol3/papers.cfm?abstract\_id=891719
https://papers.ssrn.com/sol3/papers.cfm?abstract\_id=891719
Education only, not investment advice. Ranges and thresholds are didactic orientation values, not an official standard.