Active Fund Management
Saturday 4 November 2006
Active management (also called active investing) refers to a portfolio management strategy where the manager makes specific investments with the goal of outperforming a benchmark index.
Ideally, the manager exploits market inefficiencies by purchasing securities that are undervalued, and/or (less frequently), short selling securities that are overvalued. Depending on the goals of the specific investment portfolio or mutual fund, active management may also strive to achieve a goal of less volatility or risk than the benchmark index instead of, or in addition to, greater long-term return.
Active management is the opposite of passive management, where the manager does not seek to outperform the benchmark index.
Active portfolio managers may use a variety of factors and strategies to construct their portfolio. These include quantitative measures such as P/E ratios, sector bets that attempt to anticipate long-term macroeconomic trends (such as a focus on energy or housing stocks), and purchasing stocks of companies that are temporarily out-of-favour or selling at a discount to their intrinsic value. Some actively managed funds also pursue strategies such as merger arbitrage, short positions, option writing, and asset allocation.
The effectiveness of an actively-managed investment portfolio obviously depends on the skill of the manager and research staff. In reality, the majority of actively managed collective investment schemes rarely outperform their index counterparts over long periods of time, assuming that they are benchmarked correctly.
Categories: FAQs
posted by Murray Round Wealth Management @ 14:48,
The Authors
Nicholas Round
Nic is the Managing Director of Murray Round Wealth Management Limited, who seeks to ensure the advice provided is truly independent. Based in Shropshire with clients local, national and worldwide, Nic has strived to find the best possible service for his clients needs, by researching and studying the market, trends and philosophies. Nic strongly believes Asset Class Management will bring his clients Financial Freedom, Independence and Happiness.
Kirsty
Kirsty is our communication guru. Managing information requires considerable due diligence and her passion for organisation gives the clarity we all seek. From Shropshire, with a Psychology Degree and much travelling, she is now back in Shrewsbury...and London often, keeping us all at Murray Round focused.
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