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Fidelity’s Waterhouse wary on widespread active share use

Fidelity’s Waterhouse wary on widespread active share use

One of Fidelity’s most senior salesman has warned against being overreliant on a piece of statistical data which purports to show how actively managed a fund is.

Several groups, including Neptune and Threadneedle Investments, have said they plan to publish the active share figure on their factsheets. Liontrust has also told Investment Adviser it started publishing active share on its factsheets last month.

Active share is expressed as a percentage and aims to show how closely a fund’s investments mirror those of its benchmark index.

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A higher active share percentage suggests a fund manager is making more ‘active’ investment decisions and could be used to counter claims a fund is a ‘closet tracker’ simply hugging the benchmark.

But Fidelity’s Ben Waterhouse, head of retail sales, said he was nervous about the growing trend of publishing the active share figure on retail factsheets and how it might be overrelied upon by end investors.

“The industry needs to be careful of looking at active share as its only measure,” he said.

“It is an interesting one, but it is not the only one. There are instances when a low active share does not necessarily mean it is a closet tracker.”

One example of this is if a fund has a concentrated portfolio and is focused on income or dividend growth. This would likely mean the fund has a high allocation to income-paying stocks in its benchmark index, which could subsequently make its active share lower.

Mr Waterhouse said the active share figure was provided by Fidelity to intermediaries and had been for some time. However, the group, which has a direct to consumer business, does not publish the number to end investors and would be hesitant to do so.

Threadneedle Investments has said it will start including active share data in its professional investments this week and is considering how best to make the information available to end investors.