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Active share on the JSE

Active share on the JSE Fund managers earn a portion of their fees by out-performing a benchmark, typically an index. To out-perform, they may leverage the fund or engage in scrip lending, but usually they “stock-pick“, taking positions in the market which differ from those of the benchmark, namely: “active share”. Several factors in the fund's mandate may constrain the level of active share in a fund, inter-alia: limits on specific equities or sectors, tracking error constraints around the benchmark or limits on short-selling.We find that the percentage of active share on the JSE has declined from around 50% to 15% over the last 20 years, which is consistent with research elsewhere. This indicates that fund managers are unable or unwilling to take active positions. In contrast to other studies, we find no relationship between the level of active share and a fund's return, raising doubts about the stock picking ability of fund managers. Finally, we observe that some index-tracking funds (with low active share) consistently out-perform around 80% of domestic general equity funds on the JSE over five-year holding periods. These findings challenge the high fees charged by many fund managers. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Investment Analysts Journal Taylor & Francis

Active share on the JSE

Muller, C; Ward, M
Investment Analysts Journal , Volume 40 (74): 10 – Jan 1, 2011
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Publisher
Taylor & Francis
Copyright
© 2011 Taylor and Francis Group, LLC
ISSN
2077-0227
eISSN
1029-3523
DOI
10.1080/10293523.2011.11082538
Publisher site
See Article on Publisher Site

Abstract

Fund managers earn a portion of their fees by out-performing a benchmark, typically an index. To out-perform, they may leverage the fund or engage in scrip lending, but usually they “stock-pick“, taking positions in the market which differ from those of the benchmark, namely: “active share”. Several factors in the fund's mandate may constrain the level of active share in a fund, inter-alia: limits on specific equities or sectors, tracking error constraints around the benchmark or limits on short-selling.We find that the percentage of active share on the JSE has declined from around 50% to 15% over the last 20 years, which is consistent with research elsewhere. This indicates that fund managers are unable or unwilling to take active positions. In contrast to other studies, we find no relationship between the level of active share and a fund's return, raising doubts about the stock picking ability of fund managers. Finally, we observe that some index-tracking funds (with low active share) consistently out-perform around 80% of domestic general equity funds on the JSE over five-year holding periods. These findings challenge the high fees charged by many fund managers.

Journal

Investment Analysts Journal – Taylor & Francis

Published: Jan 1, 2011

References

  • Is stock picking declining around the world? AFA 2007 Chicago Meetings Paper
  • How active is your fund manager? A new measure that predicts performance
  • Does survivorship bias really matter? An empirical investigation into its effects on the mean reversion of share returns on the JSE (1984–2007)
  • Trading volume: Definitions, data analysis and implications of portfolio theory
  • Portfolio selection
  • Liquidity preference as behavior towards risk