Passive Portfolio Management

Passive Portfolio Management

 

What is active management?

Most mutual funds are “actively managed,” which means a fund manager builds and oversees a portfolio, buying and selling different securities in search of a mix that seeks to outperform a specific benchmark. Finding investment opportunities and making trading decisions requires the collective efforts of not only the portfolio manager but also researchers, analysts, and traders. This is primarily where the fees of an actively managed fund go.

PASSIVE MANAGEMENT

Passive investment managers are labeld “passive” because they buy and hold every security from the market, with each security represented in the same manner as the market. They do not attempt to outperform the market with security selection or market timing. Passive managers believe market-beating performance is certainly possible, but not without a corresponding increased exposure to the risk. They believe the primary driver of investment success is adherence to a structured portfolio.

The underlying premise of passive management is that markets price securities fairly so that one group of investors can not consistenly profit at the expense of other investors. 

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