Thought Leadership

Actively Looking for Alpha

In the world of active management where fund managers are paid higher fees to outperform their benchmark, it is a wonder that many are able to keep their jobs. Often the underperformance is a result of building a portfolio too similar to the benchmark which, once accounted for fees, often fails to deviate far enough from benchmark returns and inevitably means underperformance.

In a study from Cambridge Associates in 2014, it found that the best way to find managers that can outperform their benchmark is to concentrate on managers that have a high active share and manage concentrated portfolios. The argument being that in order to generate returns different than the benchmark, the portfolio must look different than the benchmark. Where the implications really hit home is when investors relate their portfolios and returns to the fees that they pay. What is amazing is that only 29% of active US Equity mangers have beaten the S&P 500 in 2019[i].

Even still, only 20% of the assets managed in US equity mutual funds over the last decade were held in funds with an active share over 80%. With the average active share around 76% – slightly lower than what is defined as “truly active” at 80% – par for the course is to look less differentiated so when considering managers, try to ensure that you are investing in a consistent trusted process with a portfolio that differs from the index.

[i] Barrons: If You Still Own Actively Managed Stock Funds, Get Ready for Some Bad News

Disclaimer: This is presented for illustrative and discussion purposes only. It should not be considered as personal investment advice or an offer or solicitation to buy and/or sell securities and it does not consider unique objectives, constraints, or financial needs of the individual. Under no circumstances does this piece suggest that you should time the market in any way or make investment decisions based on the content. Investors are advised that their investments are not guaranteed, their values change frequently, and past performance may not be repeated. References to specific securities are presented to illustrate the application of our investment philosophy only, do not represent all of the securities purchased, sold or recommended for the portfolio, and it should not be assumed that investments in the securities identified were or will be profitable and should not be considered recommendations by Bristol Gate Capital Partners Inc. The information contained in this piece is the opinion of Bristol Gate Capital Partners Inc. and/or its employees as of the date of the piece and is subject to change without notice. Every effort has been made to ensure accuracy in this piece at the time of publication; however, accuracy cannot be guaranteed. Market conditions may change and Bristol Gate Capital Partners Inc. accepts no responsibility for individual investment decisions arising from the use of or reliance on the information contained herein. We strongly recommend you consult with a financial advisor prior to making any investment decisions. Please refer to the Legal section of Bristol Gate’s website for additional information at

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