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Another Use for Active Share—Understanding Portfolio Exposures

Simon Elimelakh, Barry Gillman and Geoffrey J. Warren
The Journal of Investing October 2020, joi.2020.1.149; DOI: https://doi.org/10.3905/joi.2020.1.149
Simon Elimelakh
is head of investment portfolio analytics at MLC Asset Management in Sydney, Australia
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Barry Gillman
the research director for the Brandes Institute Advisory Board and a principal at Longevity Financial Consulting LLC, in New York, NY
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Geoffrey J. Warren
is an associate professor at The Australian National University in Acton, Australia
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Abstract

We show how active share can be decomposed into segment and stock-specific exposures to create an active share risk profile. The method is demonstrated for global equity portfolios by attributing active share into contributions from country, sector, stock-specific, and non-equity positions within portfolios. Active share risk profiles can be used to identify the underlying sources of benchmark-relative risk within a portfolio both for a point in time and over time, and to compare the exposures in a portfolio relative to competitors. The method is straightforward to implement and may form a useful part of the toolkit for understanding benchmark-relative risk exposures within actively managed portfolios.

TOPICS: Equity portfolio management, global markets

Key Findings

  • • Active share can be decomposed into an active share risk profile to help understand the underlying segment and stock-specific risk exposures within a portfolio.

  • • Active share risk profiles are generated for global equity portfolios based around contributions from country, sector, stock-specific and non-index exposures. Sources of benchmark-relative risk are isolated at a point in time and over time and comparisons made between portfolios.

  • • Active share risk profile is straightforward to implement and can form part of the toolkit for understanding how active portfolios invest and what risk exposures they hold.

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The Journal of Investing: 30 (2)
The Journal of Investing
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Another Use for Active Share—Understanding Portfolio Exposures
Simon Elimelakh, Barry Gillman, Geoffrey J. Warren
The Journal of Investing Aug 2020, joi.2020.1.149; DOI: 10.3905/joi.2020.1.149

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Another Use for Active Share—Understanding Portfolio Exposures
Simon Elimelakh, Barry Gillman, Geoffrey J. Warren
The Journal of Investing Aug 2020, joi.2020.1.149; DOI: 10.3905/joi.2020.1.149
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  • Article
    • Abstract
    • GENERATING AN ‘ACTIVE SHARE RISK PROFILE’
    • EXPLANATION OF PORTFOLIO-LEVEL AS CONTRIBUTIONS
    • ASRP DEMONSTRATION FOR GLOBAL EQUITY PORTFOLIOS
    • PORTFOLIO-LEVEL ASRP
    • DRILLING DOWN INTO COUNTRY AND SECTOR EXPOSURES
    • ASRP AS A COUNTRY/SECTOR MATRIX
    • COMPARING INDIVIDUAL PORTFOLIOS USING ASRP
    • COMPARING PEER GROUPS
    • FURTHER APPLICATIONS FOR ASRP
    • CONCLUSION
    • ADDITIONAL READING
    • APPENDIX
    • ENDNOTES
    • REFERENCES
  • Info & Metrics
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  • PDF (Subscribers Only)

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