A “strategy-of-mandates” constructed narrowly by focusing on areas of true investment skill and releasing stock pickers of their emphasis on portfolio management.
The figure to the left represents different types of active and passive management as revealed by a two-dimensional picture. Active Share represents the fraction of portfolio holdings that differ from the benchmark index, thus emphasizing stock selection. Tracking error is the volatility of strategy return in excess of the benchmark, so it emphasizes bets on systematic risk.” (K.J. Martijn Cremers, Antti Petajisto, How Active is Your Fund Manager? A New Measure That Predicts Performance, Yale School of Management, October 3, 2007)
Each individual mandate falls in the “concentrated stock picks” category (see figure above), but when combined, becomes a “diversified stock picks” strategy, designed to have low tracking error (~5-7) with high active share (>85%) creating a truly actively managed strategy.