Pure Alpha II: A Framework for Active Manager Evaluation

Research Highlights

This paper extends our previous research, starting with revisiting a two-dimensional framework for measuring active management using active shares and tracking errors. The limitations of the traditional framework are discussed and a new dimension, the pure alpha estimate, is introduced to improve it.

The pure alpha opportunity of FCF US Quality ETF (TTAC) — rebranded to ABFL, Abacus FCF Leaders ETF in 2025 — in 2022 is analyzed through regression and holding-based methods. A three-dimensional framework for active manager evaluation is proposed, and a case study of US Large Blend Funds is conducted to demonstrate the evaluation process of active managers.

Key Contributions:

• Extends the traditional active share + tracking error framework with a pure alpha dimension
• Provides empirical analysis of the ABFL strategy’s alpha generation
• Develops a replicable methodology for evaluating any active manager
• Case study demonstrates practical application across US Large Blend Funds

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Originally published on Abacus FCF Advisors FCF Institute