Tony, let me answer both questions. Regarding the 55% overweight position, some simple math lends insight. Assume that the manager generates 200bp in excess return from the high conviction overweights. At a 55% allocation, that means that the effective excess return is 110bp. Factor in transaction costs (often estimated at 50-65bp, but let’s use 50bp) and total fund fees (assume 85bp), and you get an average annual excess return of -25bp. This manager will win sometimes because this is an average value. But over longer periods the negative profile will result in longer-term underperformance. The manager can always try to improve returns from their best ideas, but candidly they should have been doing that all along. They can also increase the allocation to their best ideas. A 70% allocation translates to an average 5bp positive return. But in most circumstances, our research shows that a 55% allocation to high conviction overweights is a losing hand.

Regarding Active Share, there are a number of similarities. The biggest difference is in the calculation. Active Share treats all deviation from the benchmark as adding to the overall score. And higher Active Share scores are proven to be a prerequisite for outperformance. However, our research shows that the contributions from underweighted securities and from benchmark holdings that are not in the fund do not add to alpha production. We would exclude them. Thus our interpretation of Active Share would just be the portion coming from overweight positions.