Abstract
Ostensibly index funds and ETFs are surprisingly active. A third of these funds exhibit more activeness than the median actively managed fund, as measured by conventional proxies. Using hand-collected prospectus data, we find that passive funds offer an increasingly wide assortment of styles and provide more extreme factor exposures than funds. We also identify a new dimension of activeness: the use of an index that is explicitly proprietary to the index fund or ETF. In contrast with actively managed funds, more index funds and ETFs---closet activists---underperform. A one-standard deviation increase in activeness is associated with a 55 basis-point decrease in annual alpha. Our results point to the increasingly blurred line between active and passive funds.
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