Active Premium Definition
Below please find a definition of “Active Premium Definition”
Active Premium Definition: The Active Premium is a measure of an investments annualized return minus the appropriate benchmark’s annualized return.
Active Premium Example
If your All Cap Growth equities manager returned 19% to date benchmarked against the S&P 500’s return of 5% than the active premium would be 14%. If you chose a more institutional benchmark such as the Russel 3000 which say had gained 8% YTD than the active premium would be just 11%.
Managers are largely able to choose their respective benchmarks for themselves so it is important to understand the differences between them and note when they are different while comparing two very similar strategies.
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