If you are going to pay for active management, you should make sure you are actually getting active management.
That sounds obvious, but even in 2026 many funds still engage in a practice known as closet indexing. This happens when a fund charges the higher fees associated with active management but builds a portfolio that looks very similar to its benchmark, often something like the S&P 500.
The result is that your portfolio’s risk and return will likely resemble the benchmark. However, your chances of under performing increase because you are paying far more than the few basis points it costs to track the index.
Here’s how you can quickly check whether a fund is delivering true active management or simply charging active fees for passive results.
Closet Indexing In Practice
A good example of potential closet indexing is a fund many investors may recognize from their retirement plans: Fidelity Blue Chip Growth Fund (FBGRX).
What many people do not realize is that this mutual fund also has an ETF variant. It is not a traditional share class conversion. Instead, it exists as a standalone ETF called the Fidelity Blue Chip Growth ETF (BATS:FBCG).
This ETF uses a structure known as a semi transparent ETF. Unlike most ETFs, it does not disclose its full portfolio every day. The idea is that limited disclosure helps protect the manager’s strategy from being copied by competitors. Given that the portfolio is partially hidden to protect active management, how active is the strategy really?
The useful metric to answer that question is active share, which measures how different a portfolio is from its benchmark. It is calculated by taking the absolute difference between each holding’s weight in the fund and its weight in the benchmark, adding those differences together, and dividing the result by two. The interpretation is straightforward:
- An active share of 100% means the portfolio has no overlap with the benchmark.
- A score of 0% means the portfolio is identical to the index.
- A reading around 50% suggests the portfolio overlaps with the benchmark for roughly half of its holdings.
There is no official threshold that defines closet indexing. However, many researchers consider funds with active share below roughly 60% to be increasingly benchmark hugging, and readings below 40% often raise clear concerns about closet indexing.
While FBCG does not publicly disclose its full portfolio every day, it is widely understood to hold a portfolio very similar to its mutual fund counterpart, FBGRX. That gives investors a useful reference point.
On Fidelity’s website, the composition page for FBGRX reports an active share of 35.34% as of January 31, 2026. This suggests the portfolio is still heavily overlapping with its benchmark. In practice, that means much of the fund looks similar to the index it is measured against.
You can also see this dynamic in the fund’s performance. Over the trailing five year period, FBGRX has returned 13.15% with distributions reinvested before taxes. Over the same time frame, the Russell 1000 Growth Index returned 14.36%.
That gap is not unusual for a strategy that closely resembles its benchmark but charges higher fees. FBGRX carries an expense ratio of 0.61%. Meanwhile, investors can buy a broad index fund from Fidelity tracking the S&P 500 for around 0.015%.
On a $10,000 investment, that works out to about $61 in annual fees for FBGRX versus roughly $1.50 for the index fund. Over time, that difference alone can explain a meaningful portion of the performance gap.
Verify the Active Management
Finding a fund’s active share is not always easy. Not every manager discloses it, and many fund websites avoid highlighting the metric altogether. However, investors can sometimes find it through third party research platforms such as Morningstar, which often publishes active share estimates.
Another detail to keep in mind is that active share depends on the benchmark being used. The same portfolio can show different levels of active share depending on which index it is compared against. Ideally, you want to see a strategy benchmarked against a comparable index.
For example, FBCG uses the Russell 1000 Growth Index as its benchmark. That makes sense because the fund focuses on large cap growth stocks. Against that benchmark, its active share appears rightfully low. If the same portfolio were compared to the S&P 500 instead, which is less growth tilted and somewhat less concentrated, the active share figure could appear deceptively higher. That would create the impression that the fund is more active than it really is.
In short, do not rely on the fund’s name or the story the manager tells about the strategy! Instead, look at objective data such as portfolio overlap, benchmark comparisons, and fees. That quick check can help you determine whether you are truly getting active management or simply paying active fees for something that behaves like an index fund.
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