Benchmark bandits! How some funds game active share

Martijn Cremers, whose 2009 paper introduced Active Share as a new measure of active portfolio management, has co-authored a new paper, “Benchmark Discrepancies and Mutual Fund Performance Evaluation” that introduces the concept of Benchmark Mismatch. Cremers is the Bernard J. Hank Professor of Finance at Notre Dame’s Mendoza College of Business. Read the full story here. 

It’s a familiar complaint: A fund publicizes having outperformed the S&P 500, but closer inspection reveals that it has merely benefited from overweighting small caps or FANG stocks. Shouldn’t the more relevant benchmark for it be the Russell 2000 or the Nasdaq?

Martijn Cremers – who developed the concept of active share alongside Antti Petajisto – thinks so. In a new paper with Jon Fulkerson of the University of Dayton and Timothy Riley of the University of Arkansas, the Notre Dame professor introduces his latest innovation: benchmark mismatch.