Style fit dictates active management, what percent?

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jeks

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Hi guys,
i’m wondering after what percentage would one say that a manager is being active opposed to indexing. in this example, 12% is unexplained and 88% is style fit therefore it’s active management, is there a specific number after which we can say it is or isn’t actively managed?
 
generally if R2is over 80%, then actively managed. Check that the active return is also high (eg 3-4% or more) and active risk is also high. If R2 is very high - eg 95% and IR is high (with low active return and very low active risk) then it is Enhanced indexing, not active
 
sorry null and nuller may have mentioned this,
but can high style fit mean that you’re basically indexed to your style? i.e. index to value stocks……. or is indexing always considered to be against broad index like SP500 or one of the russell indices??
didn’t understand this area that well……. still have lots of time though
 
no you should regress an active manager against his style BM to see what value they are adding. Eg if a small cap growth manager is 98% fit (R2) against a small cap growth BM, then 98% of the returns are explained by just going long the style index stocks in the same proportion as they are in the style index. So you’re wasting your money paying high fees for essentially an index return. He has just bought the style index stocks at the style index weights and played golf every day at your expense.
What you want to see is a fit of around 80-85% against his style BM and good true active returns at not too high an active risk - measured by the true Info ratio - where active return and active risk are both measured against his style BM, not the overall market BM.
 
can someone pls let me know which SS or los this is in - I want to review before I hit the sack.
thanks
 
In response to original question - believe 8% is a good CFAI rule of thumb cutoff point between active and passive.
 
do you know where this is in the readings - freaking out a bit here
 
Style fit (defined as R^2 - coefficient of determination) is in Equity in LOS 33 starting on page 20 of Schweser Book 4, or page 206 in CFAI. Rule of Thumb, of course, is not anywhere.
 
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