Active Investment Management

Active investment management involves the use of investment managers and research staff to produce investment ideas and strategies that try to beat the market. All active managers think they will beat the market. All active managers cannot beat the market – a mathematical truth, since all active investors collectively ARE the market.

So how do you choose the ones who do? Advertising campaigns suggest that it is based on previous track records, but securities regulators require all mutual fund companies to clearly indicate in the disclaimers that past performance is not indicative of future performance.

So what does Active Management mean?

Active Management means taking an active role in the ongoing process of investment selection and risk management with the objective of improving a portfolio’s risk/reward relationship. The active management strategies used by our investment partners are diverse, and utilize a broad range of securities including mutual funds, variable annuities, equity baskets, index-linked, exchange-traded securities, futures and other innovative products.

Active management (also called active investing) refers to a portfolio management strategy where the manager makes specific investments with the goal of outperforming an investment benchmark index. Investors or mutual funds that do not aspire to create a return in excess of a benchmark index will often invest in an index fund that replicates as closely as possible the investment weighting and returns of that index; this is called passive management. Active management is the opposite of passive management, because in passive management the manager does not seek to outperform the benchmark index.

Ideally, the active manager exploits market inefficiencies by purchasing securities (stocks etc.) that are undervalued or by short selling securities that are overvalued. Either of these methods may be used alone or in combination. Depending on the goals of the specific investment portfolio, hedge fund or mutual fund, active management may also serve to create less volatility (or risk) than the benchmark index. The reduction of risk may be instead of, or in addition to, the goal of creating an investment return greater than the benchmark.

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