Active? Do the math!

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Mitchell Fraser-Jones 4 February 2015 Est. reading: 3 min read

Some fund groups, including Neptune and Threadneedle, have recently announced intentions to disclose their funds’ Active Share in the interests of transparency. Active Share is a portfolio metric that measures how actively managed a fund is. As such, it is an effective metric in exposing ‘closet indexation’ – or at least it would be if it was a more readily available statistic.

Many fund managers claim to be ‘active’ but in reality, a number of industry issues constrain them from pursuing a truly active strategy. To quote Neil from his submission to the Kay Review in 2012:

The tyranny of the benchmark has created an environment where fund managers are less inclined to back businesses or industries for the long-term because they are concerned with the career risk of moving too far away from their benchmark index over shorter time periods.1

Neil Woodford, 2012

In the spirit of transparency and openness, I have just calculated the CF Woodford Equity Income Fund’s Active Share2 to be:

Active share percentage: 81.37%

You can read more about how this figure is calculated here but, effectively, it is the sum of all of the absolute active positions in a portfolio and its benchmark, divided by 2. For example, a portfolio position of 4.0% in Capita equates to a 3.6% absolute active position, by virtue of its 0.4% FTSE All Share Index weight. Similarly, a zero portfolio weight towards HSBC equates to a 5.5% contribution to the Active Share calculation, being that stock’s index weight.

Active share calculation (illustration only)
Stock Fund % Index % Active Share %
Capita 4.0 0.4 3.6
HSBC 0.0 5.5 5.5

In short, the further away an Active Share is from 0%, the more active the fund is. You would expect an index tracker, therefore, to have an Active Share close to 0% but a high Active Share means that the performance of a fund can be very different to that of its benchmark. It doesn’t necessarily mean better performance, but academic studies have provided evidence that fund’s with an Active Share of greater than 80% do tend to produce long-term relative outperformance3. In the words of Sir John Templeton:

It is impossible to produce superior performance unless you do something different from the majority.

Sir John Templeton

We are happy for the fund’s performance to be compared to the FTSE All Share Index, even though it looks nothing like it. That is because we are confident that we can deliver better returns than the market in the long run by doing things differently.

The FTSE All Share Index is a very concentrated index. That isn’t always a bad thing, but it is an important part of our investment approach to be able to avoid parts of the market when we view them as fundamentally unattractive. The oil & gas sector, for example, accounts for well over 10% of the index. We are not exposed to the oil majors but, to put this into context, BP’s 2015 net income estimate has been revised down from £9.5bn to £5.0bn since the oil price peaked in June 2014. This downgrade alone is considerably more than the entire profit generated by the entire Small Cap component of the index (£3.2bn) in 20144.

The CF Woodford Equity Income Fund’s Active Share analysis reflects an investment approach that allows us to back our investment convictions meaningfully. We believe this distinguishes us from many other fund managers. Having more readily available analysis on Active Share would allow investors to see this distinction more clearly.

The value of the fund and the income from it may go down as well as up, so you may get back less than you invested. Past performance is not a guide to future returns.

What are the risks?

  • The value of the fund and any income from it may go down as well as up, so you may get back less than you invested
  • Past performance cannot be relied upon as a guide to future performance
  • The ongoing charges figure is charged to capital, so the income of the fund may be higher but capital growth may be restricted or capital may be eroded
  • The fund may invest in other transferable securities, money market instruments, warrants, collective investment schemes and deposits – some of these security types could increase the fund′s volatility and increase the level of indirect charges to which the fund is exposed
  • The fund may invest in overseas securities and be exposed to currencies other than pound sterling – as a result, exchange rate movements may cause the sterling value of investments to decrease or increase
  • The fund may invest in unquoted securities, which may be less liquid and more difficult to value, because they are generally not publicly traded – the lack of an open market may also make it more difficult to establish fair value

Important information

Before investing, you should read the Key Investor Information Document (KIID) for the fund, and the Prospectus which, along with our terms and conditions, can be obtained from the downloads page or from our registered office. If you have a financial adviser, you should seek their advice before investing. Woodford Investment Management Ltd is not authorised to provide investment advice.

The Woodford Funds (Ireland) ICAV (the “Fund”) has appointed as Swiss Representative Oligo Swiss Fund Services SA, Av. Villamont 17, 1005 Lausanne, Switzerland. The Fund′s Swiss paying agent is Neue Helvetische Bank AG. All fund documentation including, Prospectus, Key Investor Information Documents, Instrument of Incorporation and financial reports may be obtained free of charge from the Swiss Representative in Lausanne. The place of performance and jurisdiction for all shares distributed in or from Switzerland is at the registered office of the Swiss Representative. Fund prices can be found at

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address: 27 Old Gloucester Street, London, WC1N 3AX.

© 2019 Woodford Investment Management Ltd.
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