Based upon a recent research paper conducted by Fidelity International, show that funds labelled as closet trackers due to their low numbers of active shares means that index concentration can distort the results.
Any fund or managerial account not presenting a 60 percent level of activeness has been labelled a ‘closet tracker’.
It is suggested that below this it may become more difficult to outperform the benchmark of net charges.
To test whether this theory is valid analysts created similar portfolios to see whether this figure was sensible in all circumstances.
The main conclusion currently is that the 60 percent level should be deflated for “more concentrated indices”
What do you think about the threshold?