Active Management Definition
Active Management refers to the method utilized by investment portfolio managers who are actively involved in choosing and managing the assets held within a portfolio, often in an attempt to outperform the market or achieve specific investment goals. These strategies generally involve in-depth research, analysis, market forecasting and the savvy judgment often garnered through long-standing investing experience.
Active Management Key Points
- Active management strategies involve ongoing buying and selling decisions by portfolio managers.
- These managers utilize economic data, fundamental analysis, and in some cases, technical analysis, to make decisions about security selection and timing.
- Active management contrasts with passive investing strategies where the manager tracks or replicates a specific market index.
- The main goal of active management is to beat the market averages or a specific benchmark index.
What is Active Management?
Active management is a strategy used by investment funds and individual investors who believe that markets are inefficient. The rationale behind this strategy is that by using detailed research, expert judgement, and tactical trading, these active managers aim to outperform their chosen benchmark index.
Where is Active Management used?
Active management is used in the finance and investment industries. It’s often employed by mutual fund companies, hedge funds, pension funds, and individual investors who have financial professionals managing their portfolios.
Who uses Active Management?
Active management is often used by portfolio managers in investment firms, mutual funds, and hedge funds. Some individual investors with substantial financial knowledge and expertise also practice active management in their own portfolios.
Why is Active Management important?
Active management is significant because it attempts to beat average market returns, adding value to investors’ holdings. It is also essential for risk management, as active managers can react to market changes to minimize losses.
How does Active Management work?
Active portfolio management involves constantly making investment decisions based on the ongoing analysis of varied factors, like economic trends, company financial reports, and broader market movements. Managers may buy or sell assets in response to shifts in the market or opportunities for potential gain, with the aim of outperforming a specific benchmark.
