Why We’re High on Active Share

Why We’re High on Active Share

Have you ever felt high on life? Maybe you’ve experienced a runner’s high. Here at Motley Fool Asset Management, we are high on Active Share! That’s right. We are very proud of this data point for our actively managed ETFs and want to share that love with you.

Active share measures the percentage of stocks in a portfolio that deviates from the benchmark index. Its range is from zero to one hundred. Zero active share indicates the portfolio holdings mirror the benchmark index. Portfolios with an active share of 100 have no holdings in common with their benchmark. So, the higher the active share of an ETF or mutual fund, the more unique stocks it contains. Our actively managed ETFs typically have an active share over 90. *

Since active share can be an indicator of how willing a portfolio management team is to be different, it’s fitting that Motley Fool Asset Management’s actively managed ETFs have a very high active share. Proponents of active management, like Motley Fool Asset Management, believe that high active share is a necessary ingredient to outperforming a strategy’s benchmark index. 1

We value our high active share and take pride in how we accomplish it. Each of our actively managed holdings is meticulously selected with diligence, and patience. Long-term ownership of quality businesses is key to our strategy. We maintain that, eventually, businesses will reflect the value of their future cash flows. For the most exceptional businesses, the bulk of intrinsic value resides in their longterm relevance.

In looking for quality business, we focus on 4 Core Pillars.

  • Management Culture and Incentives: Management teams that can articulate their strategies and rally their organization around them
  • Economics of the Business: Growth coupled with a healthy balance sheet.
  • Competitive Advantage: Unique strategies, products, service, or business models that stand out from the competition, and which may help them dominate the landscape for years to come.
  • Trajectory: Growing companies within growing industries.

Our Portfolio Managers take a very personal approach to finding quality companies. We’ll often follow a business for months, or even years before including it in one of our products. This deep understanding of the companies we own coupled with the vision to recognize untapped potential gives us the confidence to select stocks that may go unnoticed by more conventional investment managers.

This confidence, in our process and our holdings, has created actively managed products that we believe are different than many traditionally managed funds. Our high active share is a great reflection of that and represents our commitment to bring value to our shareholders in unique and motley ways

  1. Cremers, Martijn and Petajisto, Antti “How Active Is Your Fund Manager? A New Measure That Predicts Performance.” Slide Share. www.slideshare.net/bfmresearch/active-share-betteralpha

An investor should consider the Fund’s investment objectives, risks, charges, and expenses carefully before investing. This and other important information about the investment company can be found in the Fund’s prospectus. To obtain a prospectus, please contact your financial advisor or please call 1-888-863-8803 or visit www.mfamfunds.com. Please read the prospectus carefully before investing.

* High active share is not an indicator of a fund’s overall performance. Similarly, high active share does not necessarily mean that a fund outperformed its benchmark. Generating investment performance that is superior to a benchmark is a function of taking positions that are different than a benchmark index, and of having those positions prove profitable more often than not. Active share measures the former, but not the latter. Not all differences in holdings between a fund and a benchmark index will have the same impact on relative performance, and active share does not take into consideration the impact that trading activity might have on performance (e.g., opportunistic trading strategies). Investment strategies should be evaluated and monitored based on multiple metrics chosen for their relevance to that strategy

The information contained herein does not take into account the particular investment objectives or financial circumstances of any specific person who may receive it. The information herein is not intended to provide, and should not be relied upon for, accounting, legal or tax advice or investment recommendations. There can be no guarantee that any strategy will be successful. All investing involves risks, including potential loss of principal.

Motley Fool Asset Management’s (“MFAM”) ETFs are each a series of The RBB Fund, Inc. and are distributed by Quasar Funds Distributors, LLC, Berwyn, Pennsylvania.

MFAM, an affiliate of The Motley Fool (“TMF”), is a separate entity, and all investment decisions for the MFAM’s actively managed Funds are made independently by the portfolio managers at MFAM. No TMF analysts are involved in the investment decision-making or daily operations of MFAM. With respect to its actively managed funds, MFAM does not attempt to track any TMF services and, as such, the Funds may diverge completely from TMF’s services

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Any discussion of individual companies on this page is not intended as a recommendation to buy, hold or sell securities issued by those companies. The holdings of MFAM Funds may change at any time and are subject to risk. Current and future portfolio holdings are subject to risk.