Definition
Active managers use research, analysis, and judgment to select securities, time markets, or allocate across sectors to beat their benchmark. The debate between active and passive management is fierce: most active managers underperform their benchmarks after fees over long periods, but skilled managers can add significant value, particularly in less efficient markets.
lightbulb Example
An active large-cap fund manager overweights tech and healthcare, underweights energy, and holds 40 stocks versus 500 in the S&P 500. The fund charges 0.80% fee and must beat the S&P by at least that much to justify its existence.
verified_user Key Points
- Goal is to outperform the benchmark after fees
- Majority of active managers underperform over time
- More successful in less efficient markets
- Higher fees than passive alternatives