Active Share and the risks of relying on the skills of active fund managers

A few months after launching the Woodford Equity Income Fund in June 2014, Neil Woodford’s team published what’s known as its Active Share score. In doing so, they made a bold statement about the type of investor that Mr Woodford was… Active Share is a way of measuring how ‘active’ a fund manager is (when it comes to using skill and expertise) in constructing a portfolio. At the time, Mr Woodford was seen as one of Britain’s best money managers. And he was certainly by no means the only one to highlight his fund’s Active Share in the name of ‘transparency’. With a high Active Share score, he was effectively able to say: “look at how different my fund is to its benchmark”. And it really was. This was the score: But the subsequent collapse of the Woodford Equity Income Fund shows why Active Share can be at best misleading, and at worst, utterly useless. In just over a decade since it was introduced, Active Share has gone from being an interesting comparison tool to a measurement hijacked by parts of the fund management industry and touted as proof…