Active is Passive

If the definition of Passive is an index created and managed by someone (S&P), then passive indexes change and are therefore potentially active. 

 If an equally weighted S&P 500 portfolio is compared to the cap weighted S&P 500 index, the equally weighted S&P 500 portfolio’s active share may be higher than many active large cap manager portfolios and therefore more active. 

All portfolios that use a mathematical process, factor, or machine driven methodology can now create an index to match its portfolio thereby reducing active share to zero.  Benchmarks are passive, for the client, as a target to beat net of fees, unless changed (mostly when the benchmark outperforms the people managing how to beat the benchmark). 

If the benchmark is active because it changes over time, then the active portfolio may now be the passive part.  If we actively allocated to the under performing parts of benchmarks, the portfolio will out perform because it can therefore only overweight the better performing parts of the benchmark.  The smaller the benchmark or part of a clients benchmark, the smaller the selection of tools one will have to outperform or add value to the clients benchmark, net of fees.  Active is Passive and Passive is Active.  It’s the client’s objective to beat the benchmark, net of fees. 

Clients don’t care how they beat the benchmark, just people in the investment parts industry who are trying to sell their part, even if they have to make the benchmark active.