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Active Share Research

Touchstone views high active share and manager conviction, not as a harbinger of definite outperformance, but as indicators that a mutual fund strategy may have the opportunity to outperform its benchmark. In this context, active share can be a valuable aspect of investment manager evaluation and mutual fund analysis.

Differentiated Approaches With Active Share

Touchstone seeks strategies that have the potential to provide excess returns and complement most portfolios. We expect each fund’s sub-advisor to demonstrate a consistent and repeatable investment process. Expectations are reconciled against actual portfolio characteristics, holdings and transactions, using various investment-specific metrics, including Active Share, to monitor consistency of process and benchmark differentiation.

A commonality spans most of Touchstone equity funds. Each sub-advisor’s deep fundamental investment process has led them to a portfolio of securities in which they hold great conviction. Their portfolios tend to be more concentrated and are generally different from their respective benchmark. We believe these characteristics are desirable and broadly representative of Touchstone’s equity funds.

One measure of benchmark agnosticism is Active Share, which is a measure of the fraction of a fund’s portfolio (based on position weights) that differs from the benchmark index. Active Share is more than a number. Active Share can be a valuable element of investment manager evaluation and fund analysis.

Measuring Active Share

Active Share basically measures how different a fund is from the benchmark. If the securities and sector weights of the fund’s portfolios are 100 percent like the benchmark, the fund would be deemed to have zero percent Active Share.

Find Your Fund's Active Share

The Degree of Active Share in Mutual Funds

Active share is not a measure of skill, rather it measures how different fund holdings are relative to the holdings of their named benchmark. Advocates claim any difference in performance between fund and named benchmark (index) can only come from fund positions that are different from the benchmark.

Active share is the percentage of fund holdings that is different from the benchmark holdings. Active share can most easily be calculated as 100 percent minus the sum of the overlapping portfolio weights.

Research has shown that as a group and over fairly long periods of time that funds with low active share may tend to underperform their benchmarks net of costs; funds with high active share may tend to outperform their benchmarks net of costs, especially among funds that do not trade frequently, among small cap funds and among funds that do not have very large assets under management.

 

What is Active Share

Active Share is the proportion of fund holdings that is different or active.
Professor Martijn Cremers talks about Active Share.

 

IMPORTANT DISCLOSURES

This material is offered by Touchstone in affiliation with Professor Martijn Cremers. Touchstone Securities, Inc. is independent of Martijn Cremers.

Active Share measures the percentage of the Fund's holdings that differ from those of the benchmark. It is calculated by taking the sum of the absolute difference between all of the holdings and weights in the portfolio and those of the benchmark holdings and weights and dividing the result by two. Index performance is not indicative of fund performance. Investing in an index is not possible. Active Share is not a performance measurement. There are no assurances that any strategy or investment approach will meet its objectives. This information should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Past performance is not indicative of future results.

Please consider the investment objectives, risks, charges and expenses of the fund carefully before investing. The prospectus and the summary prospectus contain this and other information about the Fund. To obtain a prospectus or a summary prospectus, contact your financial advisor or download and/or request one on the resources section or call Touchstone at 800-638-8194. Please read the prospectus and/or summary prospectus carefully before investing.

Investment return and principal value of an investment in a Fund will fluctuate so that investor's shares, when redeemed, may be worth more or less than their original cost. All investing involves risk.

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*A registered broker-dealer and member FINRA/SIPC.

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