The return which is earned by an actively managed portfolio in excess and over an average market return (benchmark). In other words:
Value-added return = actual portfolio return – benchmark return
For example, if the value-added return is 4%, this means that the actively managed portfolio seems to have outperformed the benchmark (such as an equity index) by 400 basis points. If the confidence level at which this result was attained was high enough (99%), then investment skills would be judged as the major factor behind the active management return. Otherwise, at low confidence levels, luck would be viewed as have caused it.
It is also known as a active management return.
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