Thursday, December 23, 2010

Active Fund

Active management involves the fund manager forming strategies with the aim of generating excess returns. Most active managers aim to beat a benchmark e.g. the S&P500. Thus by definition the manager needs to hold a different mix of stocks from the index, and this will be based on the manager's skills, research, and strategy. For example some managers may focus on growth stocks, and others may focus on value stocks, some may follow momentum strategies, and so-on. Active management, aside from stock picking, may also involve asset allocation decisions e.g. emerging markets versus developed markets, currency exposure, stocks versus bonds, etc. Active managers generally charge higher fees than passive managers due to the extra cost, and the higher potential value add. There is some controversy around whether active managers as a group outperform passive managers. Active management can be applied to all asset classes or even a combination.

Synonyms: Active management, Stock picker, Asset allocator, Discretionary manager, Active strategy

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