Martijn Cremers is a Professor of Finance at the Mendoza College of Business of the University of Notre Dame. He published a research article in the latest Financial Analysts Journal titled, "Active Share and the Three Pillars of Active Management: Skill, Conviction, and Opportunity." The paper, accessible here and here, includes some great research on Active Share, Active Fee, holding period, and market cap. I recommend it to anyone interested in academic research on investment management. Active Share was first introduced by Cremers and Petajisto (2009) as a percentage of a fund's portfolio that is different from the fund's benchmark. One of the primary conclusions of Cremers' research is active managers with low Active Share tend to consistently underperform.
Cremers did NOT found statistically significant evidence that high Active Share led to outperformance or underperformance (although it may be a good starting point in fund selection). He did find strong evidence that low Active Share led to underperformance. These active managers are sometimes called closet indexers because they charge an active management fee for an index-like portfolio. To boil it down, if you are going to invest with an active manager, look for an Active Share north of 70% or even 80%. Cremers also provides Active Share information on mutual funds free of charge via the website activeshare.info. If you would like help looking into this or more information, please contact me.
Michael Grove, CFA