August 10th, 2021 | Updated on March 11th, 2022
Active management is the use of human capital to manage a portfolio of funds. Active managers rely on analytical research, personal judgment, and forecasts to make decisions on what securities to buy, hold, or sell.
Investors who do not follow the Efficient Markets Hypothesis believe in active management. They hold the belief that there are some inefficiencies in the market that allow for market prices to be incorrect.
Therefore, it is possible to profit in the stock market by identifying mispriced securities and employing a strategy to take advantage of the price correction.
Active management aims to generate better returns than a benchmark, usually some sort of a market index.
Unfortunately, a majority of active managers are unable able to consistently outperform passively managed funds. In addition, actively managed funds charge higher fees than passively managed funds.