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Volume 18 | Number 1 | 2017
© 2017 Investments & Wealth Institute™.
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3 EDITOR’S NOTE
Margaret M. Towle, PhD, CIMA®, CPWA®, CAIA®, Editor-in-Chief
THE MASTERS SERIES
4 IMPACT INVESTING: CHALLENGES AND OPPORTUNITIES
Investors who want some or all of their
assets to generate measurable, beneficial
social or environmental outcomes, along
with financial returns, are asking their asset
managers to invest in companies, organi
Gunn, and Debbie McCoy.
11 ACTIVE SHARE AND EMERGING MARKET EQUITY FUNDS
Aron Gottesman, PhD, and Matthew Morey, PhD
This paper represents the first attempt in the literature to specifically and solely
examine the relationship between active share and emerging market equity fund
performance. To do this we use a sample of U.S.based actively managed diver
sified emerging market equity funds that we follow for six years from 2009–2014.
With this sample of funds, we find a positive and significant relationship
between the average level of a fund’s active share and fund performance. Funds
that are more active have significantly better performance than other funds.
We also find evidence that highly active funds that keep the level of activeness
consistent over time have significantly better performance than funds that
vary the level of activeness. Finally, we document that a significant number
of diversified emerging market funds were closet indexing over the period
2009–2014, but that the percentage of funds that pursue this strategy
has been declining.
David Blitz, PhD
Some exchangetraded funds (ETFs) are specifically designed for harvesting
factor premiums, such as the size, value, momentum, and lowvolatility effects.
Other ETFs, however, may implicitly go against these factors. This paper
analyzes the factor exposures of U.S. equity ETFs and finds that, indeed, for
each factor there are funds that offer a large positive exposure and also funds
that offer a large negative exposure toward that factor. On aggregate, all factor
exposures turn out to be close to zero, and plain market exposure is all that
remains. This finding argues against the concern that factor premiums are
being arbitraged away rapidly by investors in ETFs.