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

Stock split

Occurs when a firm issues new shares of stock and in turn lowers the current market price of its stock to a level that is proportionate to pre-split prices. For example, if IBM trades at $100 before... Read More

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