When Unconscious Desires Motivate Fund Selection: Active Share and Position Count May Do More to Relieve Angst Than Identify Skill

Abstract

Identifying equity funds that are likely to outperform remains a daunting task for capital allocators. Traditional portfolio analyses provide useful insights into how a fund is being managed, but offer little clarity on the potential for ongoing success. Active share and position count were introduced as metrics that identify funds that will generate excess returns via skilled management. But this article argues that these metrics provide no information regarding future fund performance or manager skill. We further propose that active share and position count do more to relieve unconscious anxiety provoked during the allocation process than to enhance rigorous judgment.