Active Management: Concepts, How It Works, and Comparison with Passive Strategies
Active management relies on research, forecasting, and manager judgment to frequently adjust holdings in an effort to outperform a market index or benchmark, but higher trading costs and judgment risk mean that results are not guaranteed.
What is active management
Active management is an investment strategy in which fund managers or traders actively select and frequently buy and sell assets. Its goal is to identify market pricing discrepancies, capitalize on price movements to achieve targeted returns, or outperform the S&P 500 and other reference indexes; regardless of whether the market is rising or falling, managers attempt to identify opportunities.
How the strategy works
This strategy is based on analytical research, market forecasting, and independent decision-making. Managers seek excess returns by observing market trends, assessing whether assets are mispriced, and selecting when to buy or sell. Actual performance depends heavily on individual skill and judgment; even experienced managers may misjudge market movements and underperform the market.
Difference from passive management
Passive investing typically builds a long-term portfolio to track a particular index, minimizing active security selection and frequent trading. By comparison, active management generally involves more trades, higher fees, and greater risk exposure; historical data over longer periods shows that most actively managed funds have failed to outperform their benchmarks after fees, although active management can still be used to capture opportunities in specific or niche markets.
Original Tutorial
https://www.binance.com/zh-CN/academy/glossary/active-management
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