What does Active share measure?

• A. The percentage of holdings that diverge from the index
• B. The standard deviation of the difference in returns versus the benchmark
• C. The annual turnover rate
• D. The beta relative to the benchmark

Answer: (A)

Active Share measures how much a portfolio's holdings diverge from the benchmark. It does this by comparing each security’s weight in the portfolio to its weight in the benchmark and summing the differences (usually scaled to 0–100%). A higher Active Share means the fund is truly different from the index in its stock selection, while a lower Active Share means it closely tracks the index. This distinguishes it from tracking error (which looks at return differences), turnover (how often trades occur), or beta (sensitivity to market moves). For example, if the portfolio perfectly resembled the index, Active Share would be 0%; if it held mostly securities not in the index, it would move toward 100%.