Passive Management

AAA

DEFINITION of 'Passive Management'

A style of management associated with mutual and exchange-traded funds (ETF) where a fund's portfolio mirrors a market index. Passive management is the opposite of active management in which a fund's manager(s) attempt to beat the market with various investing strategies and buying/selling decisions of a portfolio's securities.

Also known as "passive strategy," "passive investing" or "index investing."

INVESTOPEDIA EXPLAINS 'Passive Management'

Followers of passive management believe in the efficient market hypothesis. It states that at all times markets incorporate and reflect all information, rendering individual stock picking futile. As a result, the best investing strategy is to invest in index funds, which, historically, have outperformed the majority of actively managed funds.

RELATED TERMS
  1. Active Management

    The use of a human element, such as a single manager, co-managers ...
  2. Efficient Market Hypothesis - EMH

    An investment theory that states it is impossible to "beat the ...
  3. Expense Ratio

    A measure of what it costs an investment company to operate a ...
  4. Inactivity Fee

    1. A sum charged to investors who haven't engaged in any buying ...
  5. Index

    A statistical measure of change in an economy or a securities ...
  6. Index Fund

    A type of mutual fund with a portfolio constructed to match or ...
Related Articles
  1. Is Your Portfolio Beating Its Benchmark?
    Bonds & Fixed Income

    Is Your Portfolio Beating Its Benchmark?

  2. Using ETFs To Build A Cost-Effective ...
    Mutual Funds & ETFs

    Using ETFs To Build A Cost-Effective ...

  3. Active Management: Is It Working For ...
    Mutual Funds & ETFs

    Active Management: Is It Working For ...

  4. 4 Ways To Use ETFs In Your Portfolio
    Mutual Funds & ETFs

    4 Ways To Use ETFs In Your Portfolio

comments powered by Disqus
Hot Definitions
  1. Elasticity

    A measure of a variable's sensitivity to a change in another variable. In economics, elasticity refers the degree to which ...
  2. Tangible Common Equity - TCE

    A measure of a company's capital, which is used to evaluate a financial institution's ability to deal with potential losses. ...
  3. Yield To Maturity (YTM)

    The rate of return anticipated on a bond if held until the maturity date. YTM is considered a long-term bond yield expressed ...
  4. Net Present Value Of Growth Opportunities - NPVGO

    A calculation of the net present value of all future cash flows involved with an additional acquisition, or potential acquisition. ...
  5. Gresham's Law

    A monetary principle stating that "bad money drives out good." In currency valuation, Gresham's Law states that if a new ...
  6. Limit-On-Open Order - LOO

    A type of limit order to buy or sell shares at the market open if the market price meets the limit condition. This type of ...
Trading Center