At a time when fund expenses are increasingly under scrutiny, some have turned to active share (the level of correlation between an index fund and its benchmark) as a predictor of fund performance and a means of justifying hefty management expenses. A higher active share (on a scale of 0 to 100) means a fund bears less resemblance to its benchmark. Some would argue that this indicates a higher level of active management, a higher probability of stronger returns and, therefore, a basis for higher fees. Russel Kinnel, director of manager research for Morningstar, disagrees.

By breaking down U.S. equity funds into groups based on levels of active share (relative to their peer groups) as of January 2011, Kinnel was able to analyze performance through December 2015. What he found was that; (1) increased active share actually correlated with poorer fund performance, and (2) active share’s ability to predict investor returns (as measured by success ratios) was weak.

Kinnel explains that active share is often mistaken (erroneously) for a measure of skill. A fund manager, he argues, can take positions that deviate from the benchmark but that doesn’t necessarily mean those positions will improve returns. Instead, Kinnel believes that active share is useful as a tracking tool to determine whether a fund is behaving like an index and whether a manager is shifting his investment strategy. In this way it serves as a descriptor, but not a predictor, of fund performance.