Closet indexer

A manager charging active fees while holding a portfolio close to the benchmark. The giveaway is low active share with low tracking error: the return is mostly the index, less a larger fee.

Where you will meet it

Closet indexer appears in 2 learning outcomes on the CFA syllabus. A few of them:

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

  “Concentrated stock pickers are high on both; closet indexers are low on both.”

• Explain why an investor might choose each approach along the range from passive to highly active equity management
  CFA Level III · Portfolio Construction

  “A closet indexer charges active fees for near-index exposure.”

See also

Active risk · Active share

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.
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All terms beginning with C · Glossary