Active Management


DEFINITION of 'Active Management'

The use of a human element, such as a single manager, co-managers or a team of managers, to actively manage a fund's portfolio. Active managers rely on analytical research, forecasts, and their own judgment and experience in making investment decisions on what securities to buy, hold and sell. The opposite of active management is called passive management, better known as "indexing".

BREAKING DOWN 'Active Management'

Investors who believe in active management do not follow the efficient market hypothesis. They believe it is possible to profit from the stock market through any number of strategies that aim to identify mispriced securities.

Investment companies and fund sponsors believe it's possible to outperform the market, and employ professional investment managers to manage one or more of the company's mutual funds. The objective with active management is to produce better returns than those of passively managed index funds. For example, a large cap stock fund manager would look to beat the performance of the Standard & Poor's 500 Index. Unfortunately, for a large majority of active managers, this has been difficult. This phenomenon is simply a reflection of how hard it is, no matter how smart the manager, to beat the market.

  1. Aggressive Investment Strategy

    A portfolio management strategy that attempts to maximize returns ...
  2. Stump The Chump

    The act of challenging a person in the spotlight in an attempt ...
  3. Exchange Traded Products – ETP

    A type of security that is derivatively-priced and which trades ...
  4. Hulbert Rating

    A ranking system that tracks the performance of investment newsletters ...
  5. Active Investing

    An investment strategy involving ongoing buying and selling actions ...
  6. Expense Ratio

    A measure of what it costs an investment company to operate a ...
Related Articles
  1. Mutual Funds & ETFs

    The 8 Most Popular Vanguard Funds for a 401(k)

    Learn about some of the mutual funds in Vanguard's lineup that are popular among 401(k) investors, and find out why you should consider them.
  2. Mutual Funds & ETFs

    How Vanguard Index Funds Work

    Learn how Vanguard index funds work. See how the index sampling technique allows Vanguard to charge low expense ratios that can save investors money.
  3. Bonds & Fixed Income

    Is Your Portfolio Beating Its Benchmark?

    Compare portfolio manager performance using the information ratio.
  4. Mutual Funds & ETFs

    Active Management: Is It Working For You?

    There are guidelines to be followed when comparing an actively-managed investment strategy with a benchmark.
  5. Mutual Funds & ETFs

    Actively-Managed ETFs: Risks And Benefits For Investors

    Find out how these second-generation ETFs are changing the marketplace.
  6. Mutual Funds & ETFs

    Team Players Vs. All-Stars For Mutual Fund Management

    Mutual funds vary in terms of their management structures and one size generally does not fit all investors.
  7. Investing Basics

    Is Stock Picking A Myth?

    Find out if mutual fund managers can successfully pick stocks or if you're better off with an index fund.
  8. Mutual Funds & ETFs

    Actively Managed ETFs: The New Mutual Funds?

    Actively managed ETFs offer increased earnings, but are the cons worth the potential payoff?
  9. Active Trading

    Peter Lynch On Playing The Market

    Everyone can appreciate great advice from a professional. Read on to benefit from the vast experience of Peter Lynch.
  10. Mutual Funds & ETFs

    Active Vs. Passive ETF Investing

    You can use these securities for more than just indexing. Explore the spectrum of possible ETF strategies.
  1. What does a high turnover ratio signify for an investment fund?

    If an investment fund has a high turnover ratio, it indicates it replaces most or all of its holdings over a one-year period. ... Read Full Answer >>
  2. What is the difference between passive and active asset management?

    Asset management utilizes two main investment strategies that can be used to generate returns: active asset management and ... Read Full Answer >>
  3. Is the telecommunications sector better suited for active or passive investment?

    The telecommunications sector's high volatility and uncertain future make it better suited for active investment than for ... Read Full Answer >>
  4. Is the drugs sector better suited for active or passive investment?

    Active management and passive management represent two vastly different approaches to investing. Active investors keep their ... Read Full Answer >>
  5. What is the best managed fund for trading mid-cap stocks?

    Mid-cap stocks have a moderate capitalization and are officially valued between $1 billion and $8 billion. Actively managed ... Read Full Answer >>
  6. What is the difference between passive and active portfolio management?

    Investors have two main investment strategies that can be used to generate a return on their investment accounts: active ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bar Chart

    A style of chart used by some technical analysts, on which, as illustrated below, the top of the vertical line indicates ...
  2. Bullish Engulfing Pattern

    A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses ...
  3. Cyber Monday

    An expression used in online retailing to describe the Monday following U.S. Thanksgiving weekend. Cyber Monday is generally ...
  4. Take A Bath

    A slang term referring to the situation of an investor who has experienced a large loss from an investment or speculative ...
  5. Black Friday

    1. A day of stock market catastrophe. Originally, September 24, 1869, was deemed Black Friday. The crash was sparked by gold ...
Trading Center