On March 17, 2014, I wrote about an interesting article from the Financial Times that discussed “active share”. Hopefully many of you were able to read it. If not, it’s available here and worth reading before continuing with this blog entry.
One of our biggest priorities at Cambridge is to be fully transparent with clients. Immediately after reading that article, we asked our Portfolio Analytics team to dig into our portfolios to find out what our active share looked like and to ensure we were “practicing what we preached”. I can tell you, we spend literally zero time discussing what a potential or existing investment idea's weight is in an index, so we expected to be considerably different. But, I don’t think we knew exactly how little overlap we had. The data is summarized below. The firm-wide takeaways were that on average our funds have ~10% overlap with their respective benchmarks and the range was 2% for our Cambridge Canadian Growth Companies Fund (which was soft-capped in early March) to 12% for our Cambridge American Equity Fund.
We were very encouraged because, as you all know by now, our focus is on absolute returns and we could care less about our positioning relative to peers and benchmarks. At the end of the day, we are significant owners of our own funds and thus treat the portfolios as if they were our own money. We think having this managerial alignment means that we are willing to be different than our peers and the benchmark but only if it makes sense for the client. I could go on and on about how few portfolio managers are willing, or able to, deviate from their benchmark, (just look at their top 10s and sector weightings vs. the index or ETF) but I will leave it to you to just ask the question next time you are in front of a money manager of a fund company.
What is your active share and how much of the fund do you own personally? I’d be interested to hear the answers you receive.