While active share, which measures the extent to which a stock fund’s holdings overlap with a specified benchmark index, can be useful information for investors, a recent article in Morningstar argues that “it’s probably not a must-have.”

The assertion came in the wake of New York Attorney General Eric Schneiderman’s recent announcement that 13 companies had voluntarily agreed to disclose active share to retail investors, describing it as “critical information” to be used in making investment decisions.

Active share (which is zero if a fund’s holdings perfectly match its benchmark), the article says, has come into focus for a few reasons, including:

• It’s easy to understand “yet can convey useful information about a stock portfolio’s makeup”;
• Some believe it is predictive, that funds with higher active shares are more likely to outperform those with lower active share (although this is disputed by some researchers);
• It can be used to “assess whether an active fund is charging a fair fee.”

The third point, the article says, forms the crux of the Attorney General’s argument. The article offers analysis and examples to illustrate the point, arguing that while Schneiderman is “onto something,” his position lacks some nuance.

Here are the article’s takeaways:

• Active share can help investors differentiate between a fund and its benchmark or compare between several funds that track the same index, making it a “potentially worthwhile descriptive measure.”
• It does not, however, according to Morningstar, “appear to be strongly predictive of future returns.”
• The Attorney General’s agreement seems “well-intentioned as an effort to make more data available to investors. But it also seems to overlook the fact that active share’s merit as a measure of value-for-fees depends on the relationship between active fee and future performance.”

The article concludes: “Based on our research, that relationship doesn’t appear to be strong, which makes one question how critical active share really ought to be considered to begin with.”