“Active share is a measure of how much a fund’s holdings deviate from its benchmark index, and funds with the highest active share tend to have the best performance.

Thus, while there’s no doubt that, in aggregate, active management underperforms and the majority of active funds underperform every year (and the percentage that underperform increases with the time horizon studied), if an investor were able to identify the few future winners by using active share as a measure, active management could be the winning strategy.”

[COMMENTARY]Active versus passive management of stock portfolios has been a hot topic for many years. It’s true that in recent times passive portfolio management such as most ETFs where there are few if any, stock changes in any given year, has generally outperformed active portfolio management.

However, this analysis has generally been done in rising markets. Most of these passive ETFs have only arisen in the past twenty years too. We have yet to see what might happen in a long-term bear market, should such a situation arise. Many active managers maintain that’s when active management will be the winner.
The Evidence Mounts Against Active Share, by Larry Swedroe, February 22, 2022, Advisor Perspectives, USA.