Active management refers to a portfolio management strategy where the manager makes specific investments with the goal of outperforming an investment benchmark index. In passive management, investors expect a return that closely replicates the investment weighting and returns of a benchmark index and will often invest in an index fund.
Good active manager exploits market inefficiencies by purchasing securities (stocks or bonds) that are undervalued. Good active management may also serve to create less volatility than the benchmark index. The effectiveness of an actively managed investment portfolio depends on the skill of the manager.
Active portfolio managers may use a variety of factors and strategies to construct their portfolio(s) in an attempt to outperform the market. These include quantitative measures, sector investments that attempt to anticipate long-term macroeconomic trends, and purchasing stocks of companies that are temporarily out-of-favor or selling at a discount to their intrinsic value.
The primary attraction of active management is that it allows selection of a variety of investments instead of investing in the market as a whole. Investors may have a variety of motivations for following such a strategy:
When evaluating an active investment manager, it is important to determine:
Does the manager have a track record of outperforming market benchmarks over extended periods of time?
Is the manager a closer indexer, calling themselves an active manager to justify higher investment management fees?
Is my active manager involved in frequent trading, which generates higher transaction cost and additional capital gains taxes?
Scout Investments offer comprehensive investment, insurance, and mortgage solutions at the lowest cost to our clients.
For more info email at- kevin@scoutinvestment.ca
www.scoutinvestments.ca
1-800-795-6701
Good active manager exploits market inefficiencies by purchasing securities (stocks or bonds) that are undervalued. Good active management may also serve to create less volatility than the benchmark index. The effectiveness of an actively managed investment portfolio depends on the skill of the manager.
Active portfolio managers may use a variety of factors and strategies to construct their portfolio(s) in an attempt to outperform the market. These include quantitative measures, sector investments that attempt to anticipate long-term macroeconomic trends, and purchasing stocks of companies that are temporarily out-of-favor or selling at a discount to their intrinsic value.
Advantages of active management
The primary attraction of active management is that it allows selection of a variety of investments instead of investing in the market as a whole. Investors may have a variety of motivations for following such a strategy:
- Some managers outperform passively managed portfolios over long periods of time.
- Investors can avoid some market segments are less efficient in creating profitable investments than others.
- Investors may want to manage volatility by investing in less-risky, high-quality companies rather than in the market as a whole.
- Many investors find active management an attractive investment strategy in declining markets than remaining passively invested in overvalued markets.
When evaluating an active investment manager, it is important to determine:
Does the manager have a track record of outperforming market benchmarks over extended periods of time?
Is the manager a closer indexer, calling themselves an active manager to justify higher investment management fees?
Is my active manager involved in frequent trading, which generates higher transaction cost and additional capital gains taxes?
Scout Investments offer comprehensive investment, insurance, and mortgage solutions at the lowest cost to our clients.
For more info email at- kevin@scoutinvestment.ca
www.scoutinvestments.ca
1-800-795-6701
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