As it turns out, when the mutual fund universe is narrowed to high active share funds, active management still beats passive management most of the time, according to Cremers.

“You avoid underperformance by avoiding low active share funds,” he says.

Steve Graziano of Touchstone Investments says that active share gives advisors and managers a metric for a strategy’s quality that’s not dependent on backward-looking measures.

“In the absence of this structure, the only information to make a long-term pick is past performance,” Graziano says. “It’s hard to have conviction to hold onto a fund if all you’ve looked at is past performance.”

Cremers, in partnership with Touchstone Investments, has also announced the launch of ActiveShare.info, a website that allows advisors and investors to research active share across the U.S. mutual fund universe.

Cremers also identifies three pillars of successful active management that complement an understanding of active share: skill, conviction and opportunity.

Active share does not measure skill in stock picking, but a manager’s deviation from its benchmark—thus active share may only be beneficial among managers of high stock picking skill. Yet the lower a fund’s active share, the more difficult it is for a manager to outperform their benchmark, he says.

If a fund has an annual expense ratio of 0.84 percent and a passive product tracking the benchmark is available at 0.15 percent annual expense ratio, its positions need to outperform the benchmark by 0.69 percent each year to cover its additional costs. If that fund has an active share of 49 percent, only half of its portfolio is able to contribute to the outperformance—giving the active share of the fund a hurdle rate of 1.41 percent per year.

Last year, Cremers helped introduce the concept of active fee, which measures the fee charged for the actual level of active management in a fund. As active share decreases, active fee tends to increase, but it should ideally be stable, says Cremers.

Low active share mutual funds tend to underperform their indexes, especially if they have high expenses.