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Positive skew can be a primary contributor to active strategies’ underperformance relative to their benchmark (see chart below).

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POSITIVE SKEW IS NEGATIVE FOR ACTIVE MANAGERS

POSITIVE SKEW IS NEGATIVE FOR ACTIVE MANAGERS

So, what is positive skew? Positive skew is a phenomenon present in populations where large “positive” outliers cause the average to be higher than the median. Net worth is an example of something with a very large positive skew. The top 1% of the net worth distribution holds 45% of the wealth according to __Wikipedia__. For example, Jeff Bezos’s net worth dramatically skews the distribution as it is equal to 2.3 million US citizens at the median net worth of roughly $61,000. If you were to pick a random American, there is a ~70% chance that you would select someone below the mean of $404,000. This is an example of severe positive skew.

**Percentage of Funds that Underperformed the S&P 500 (after fees)**

Source: S&P Dow Jones Indices, LLC