CFA III Volume 6, Reading 36, Active Share

[Jonathan_Ngai]

Hi All, quick question on the 2020 curriculum p258. Exhibit 6.

This has been asked by many people but I cannot find an answer.
Active share = how your portfolio weight deviate from benchmark
Active risk (tracking error) = how your portfolio volatility (s.d.) different from benchmark

all good here. but in exhibit 6 it says diversified stock pickers will have higher active share than sector rotator. how? In my view, diversified picker would be picking sub-set of the benchmark while sector rotator can rotate to a sector that is concentrated and outside benchmark. Thanks.

[S2000magician]

@Jonathan_Ngai

Active risk (tracking error) = how your portfolio volatility (s.d.) different from benchmark

Not exactly.

It’s the standard deviation of the difference between your portfolio’s returns and the benchmark’s returns.

[imthekingoftheworld]

@Jonathan_Ngai

diversified stock pickers will have higher active share than sector rotator

Sector rotator means replicating sector’s index -> low active share