Active share is a measure of the difference between a portfolio and a benchmark. It’s an important concept for investors wishing to judge how fund managers’ portfolios deviate from the index, and how that affects performance. It can show clearly when a fund is a "closet index tracker", one that holds shares very similar to the index but charges fees associated with active management. (The higher the active share, the more the fund differs from the benchmark).

Looking at active equity funds across the globe, some invest in narrow markets, such as Danish, Italian, or Singaporean equities, with highly concentrated benchmarks and only a short list of constituents. On the other hand, in global or regional categories, indexes hold a far longer list of names...