A distribution among U.S. active large-cap equity fund managers shows that a greater percentage are moving closer to their respective benchmark allocations. As measured by active share – 100% being no common holding weights with the index and zero being a perfect match – fewer managers are taking out-of-index bets in their portfolios.
The percentage of managers eschewing their benchmarks completely, fell to about 26% in 2018 from 37% in the second quarter of 2014, while those taking a more middle-ground stance increased over the four-year period. This could be a sign of waning confidence in the equity market as managers believe opportunities to outperform the market are lessening.
On the other end of the spectrum, closet indexers – active managers that follow their indexes too closely – have declined as a percentage of the universe.