Investment fund managers tend to follow either an ‘active’ or ‘passive’ management approach to investing. Both approaches have some fundamental differences in targeted performance and strategy.
‘Passive’ investment fund managers adopt an index tracking management approach where an index of investments is purchased to mirror the relevant share market weighting. These investments are held over a long period of time, minimising buying and selling to keep investment costs down. This approach assumes markets are relatively efficient and there are few opportunities for a fund manager to add value through active management. These types of investments should broadly perform in line with normal market returns with less opportunity for under or over-performance. Fees tend to be lower due to reduced trading and related transaction costs.
‘Active’ investment fund managers follow an investment strategy where investments are proactively bought and sold to meet their investment strategies. Active fund managers believe market inefficiencies exist and should be exploited through portfolio construction and a bias to active management. These types of investments target market out-performance, working to minimise losses and maximise returns. Fees are often higher than passive funds but are expected to be more than offset by superior returns over an extended period of time.
We work with both active and passive fund managers and will work with you to consider the best option for your circumstances.