NEW YORK, Nov. 19, 2014 /PRNewswire/ -- As a tool to gauge the effectiveness of active asset managers, Active Share has achieved a measure of popularity and relevance. In a new white paper, Deconstructing Active Management through Active Share, ClearBridge Investments makes the case for why investors should rely upon this simple yet innovative measure – and delineates its limitations.
"Active share has become a popular measure for determining the role of stock picking in the performance of active managers," explained Scott Glasser, Co-Chief Investment Officer for ClearBridge Investments. "At a time when investors are embracing portfolios that include both active and passive approaches, this new paper highlights the growing need for active managers to produce differentiated returns and how active share, used in conjunction with other portfolio data, can help judge their success."
Deconstructing Active Management through Active Share, authored by Vinay Nadkarni, ClearBridge Investments' Head of Financial Intermediary Distribution, offers three key takeaways:
- The active versus passive debate is no longer an all or nothing proposition. Instead, ClearBridge Investments views active and passive as complementary approaches within an overall portfolio.
- The growing use of active share to evaluate sources of active returns has made it important for investors to recognize the strengths and shortfalls of the measure.
- Active share can most effectively inform active management decisions when the sources of active share are understood and result from consistent execution.
Active share provides an approximate measure of the percentage and weightings of stock holdings in a portfolio that differ from its benchmark index and offers a snapshot of stock overlap. For example, an active share of 0 implies that an investment portfolio is identical to its benchmark while active share of 100 indicates that a portfolio and its benchmark have no holdings in common.
"At ClearBridge, high active share is an organic result of our bottom-up approach to stock selection," Mr. Nadkarni writes in the paper. "We have broad parameters for sector representation compared to strategy benchmarks, but allow our individual investment teams wide latitude to express their highest conviction views.
"By remaining true to their investment philosophy and allowing stock selection to guide portfolio construction, ClearBridge strategies provide measurable differentiation from both passive alternatives and active funds with low active share."
Mr. Nadkarni concludes that active share has raised awareness of the meaningful differences among active investment approaches, "The bar is being substantially raised for what clients expect from an active manager."
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About Vinay Nadkarni, FCAS
As a Managing Director and Head of Financial Intermediary Distribution with 21 years of industry experience, Vinay Nadkarni joined ClearBridge Investments from a predecessor organization in 1996. Mr. Nadkarni is a member of the ClearBridge Management Committee. Previously he was a product specialist in gatekeeper relations with Legg Mason Investors Inc.; an SMA product manager in corporate development for Citigroup Asset Management; a senior actuarial assistant (during which time he achieved the FCAS designation) with Travelers Cos.; and a property and casualty actuary with Aetna, Inc. Mr. Nadkarni earned an M.B.A. from the Wharton School of the University of Pennsylvania, and a B.S. in Actuarial Science from Pennsylvania State University.
About ClearBridge Investments
ClearBridge Investments is a well-established global investment manager with $108 billion in assets under management as of September 30, 2014. With a legacy dating back over 50 years, our long-tenured portfolio managers and fundamental research team focus on building equity portfolios for clients who seek income solutions, high active share or low volatility. Owned by Legg Mason, ClearBridge operates with investment independence from headquarters in New York and offices in Baltimore, San Francisco and Wilmington.
About Legg Mason
Legg Mason is a global asset management firm with $708 billion in assets under management as of September 30, 2014. The Company provides active asset management in many major investment centers throughout the world. Legg Mason is headquartered in Baltimore, Maryland, and its common stock is listed on the New York Stock Exchange (symbol: LM).
All investments involve risk, including loss of principal. Past performance is no guarantee of future results.
©2014 Legg Mason Investor Services, LLC, member FINRA, SIPC. Legg Mason Investor Services, LLC and ClearBridge Investments, LLC are subsidiaries of Legg Mason, Inc. TN14-507
SOURCE ClearBridge Investments