Active Management
Active management involves selecting investments to outperform a benchmark through research, analysis, and market timing, charging higher fees than passive strategies.
Concept map
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Definition
Active management involves selecting investments to outperform a benchmark through research, analysis, and market timing, charging higher fees than passive strategies.
Use case
Used in investment strategy workflows, analysis, and technical interviews.
Judgment check
Useful only when the assumptions and inputs behind the metric are understood.
Deep dive
How to think about Active Management
Active managers use fundamental analysis (stock picking), technical analysis, or quantitative models to identify mispriced securities. SPIVA studies consistently show most active managers underperform their benchmarks after fees over long periods. Survivorship bias means even worse results than reported.
Example: A large-cap active manager charges 1% annually, selecting 50 stocks vs. the S&P 500's 500. To justify fees, the manager must outperform by 1%+ annually. Over 10 years, only ~15% of active managers typically achieve this, net of fees.