New York (HedgeCo.Net) The study was released as a white paper from Invesco. The study looked at five different market cycles over the last 20 years and it included approximately 3,000 equity-oriented mutual funds. The study used active share as the foundation for their analysis.
“Our study focused on active share, which measures the difference between a fund’s holdings and the holdings of the benchmark index. If a fund held completely different stocks than its benchmark, it would have an active share of 100%. A fund that perfectly mirrored its benchmark would have an active share of 0%. For the purposes of our study, we define “high active share” using the common threshold first used by Cremers/Petajisto and others- an active level of 60% or greater.” Invesco, Think Active Can’t Outperform? Think Again.
What the findings showed is that on an asset-weighted basis, 61% of high active share fund assets beat their benchmarks across all market cycles, and that was after fees. On an equal-weighted basis, 53% of the funds beat the benchmarks.
One particular finding of the study confirms an argument we have made for the hedge fund strategies used by the models on our platform. That is that active management did a much better job during a down market cycle. 64% of the high active share funds beat their benchmarks when it came to downside capture. The study also looked at risk-adjusted returns and 61% of high active share funds had a better Sharpe Ratio than their benchmarks.
The study provides more evidence to support what HedgeCoVest believes and that is that active management works and especially when you combine it with the hedge fund strategies employed by the models on our platform.