Active share

The share of a portfolio's holdings that differs from its benchmark's: half the sum of the absolute differences in weights. It measures how different the holdings are; tracking error measures how differently they behave.

Where you will meet it

Active share appears in 3 learning outcomes on the CFA syllabus. A few of them:

• Set out the risk measures relied on by insurers, pension funds, asset managers, and banks
  CFA Level II · Portfolio Construction

  “Traditional asset managers focus on benchmark-relative risk: tracking error, active share, relative VaR, redemption liquidity and scenario losses.”

• Contrast Active Share with active risk and relate each measure to the strategy a manager follows
  CFA Level III · Portfolio Management Pathway

  “Active Share measures how far holdings differ from the benchmark: Active Share = ½ × Σ |portfolio weight − benchmark weight|, ranging from 0 for an index copy to 1 for no overlap.”

• Explain the risk measures built into equity portfolio construction and how caps on them alter the portfolio
  CFA Level III · Portfolio Management Pathway

  “Tight active-risk limits pull the portfolio towards the index, lower Active Share and shrink expected alpha.”

See also

Active risk

Practise it

• Today's practice question One question, with every wrong option explained.
• Free Level I diagnostic test Twelve questions that show which topics to start with.
• Free finance calculators Check your arithmetic on the exam's core formulas.

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