Active Management


The opposite of passive management. The passive manager simply minimizes the tracking error of their portfolio and a well known index (e.g. S&P 500 index mutual funds). The active manager will deviate from the benchmark weights by (i) varying the weights from the benchmark weights on the securities; (ii) adding securities outside the benchmark or choosing not to hold securities included in the benchmark and (iii) time-varying asset allocation where weights on certain asset classes change through time. The goal of active management is to produce a return that exceeds the passive return with minimal risk.

Investing Essentials

Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day


Describes an investor who, when faced with two investments with the same expected return but different risks, prefers the one with the lower risk.

Subscribe to the Term of the Day via email Get the Term of the Day in your inbox!

Create your free portfolio