Active Share: Different Is Not Better

Cliff Asness - Active Share: Different Is Not Better by AQR

A buzzword in the investment community these days is active share, a specific way to measure how different a portfolio is from its benchmark. On its own, such a measure wouldn’t attract much attention; what’s gotten people excited is the claim that higher active share predicts higher excess returns.

So does it? No, as we show in a new AQR white paper, “Deactivating Active Share.” That shouldn’t be too surprising. Just because a portfolio claims to have “high conviction” and thus looks a lot different than its benchmark doesn’t mean it should perform better than its benchmark. The idea that success requires high conviction may seem intuitive...