"There was so much discussion of closet indexing, but no one was putting numbers to these claims," says Petajisto, who now works in global tactical asset allocation at BlackRock.
With that in mind, Cremers and Petajisto teamed up to find how to differentiate true stockpickers from closet indexers. They finished the first draft of their research in 2006 and in 2009 published a paper, "How Active Is Your Fund Manager? A New Measure That Predicts Performance." That measure -- which they named "active share" -- is the percentage of a fund's weight-adjusted portfolio that differs from its benchmark. Not exactly rocket science. "I'm the first to admit that our measure is very obvious," says Cremers. "I like to think that its simplicity gives it strength."
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