Active investment definition (2024)

FAQs

Active investment definition? ›

Active investment is a form of investment strategy that involves actively buying and selling assets in the hope of making profits and outperforming a benchmark or index. An example of an active investor is a hedge fund manager, who constantly monitors the market and trades when they see an opportunity to make money.

What is Active Investing? An active investment strategy involves using the information acquired by expert stock analysts to actively buy and sell stocks with specific characteristics. The goal is to beat the results of the indices and general stock market with higher returns and/or lower risk.

Basics of active investing

Rather than track an index, an active fund will target a return above a particular benchmark. An example of this is, every year, an actively managed fund might aim to achieve the same return as the S&P ASX 200 plus two per cent.

Active investing means investing in funds whose portfolio managers select investments based on an independent assessment of their worth—essentially, trying to choose the most attractive investments. Generally speaking, the goal of active managers is to “beat the market,” or outperform certain standard benchmarks.

Active investments are funds run by investment managers who try to outperform an index over time, such as the S&P 500 or the Russell 2000. Passive investments are funds intended to match, not beat, the performance of an index. Source: Getty Images.

Here are a few examples of active investing: A mutual fund manager picking stocks and bonds to buy and sell for a fund. A hedge fund manager using leverage and short selling strategies. An individual investor researching and picking individual stocks to buy and hold.

Active Investing Disadvantages

All those fees over decades of investing can kill returns. Active risk: Active managers are free to buy any investment they believe meets their criteria. Management risk: Fund managers are human, so they can make costly investing mistakes.

Let's understand this with the help of examples. Equity mutual funds, debt mutual funds, hybrid funds, or fund of funds, are all actively managed funds.

Pros: Active investing aims to beat the market, and therefore, presents the opportunity for higher gains than passive investing. Active investors can respond quickly to market changes and buy/sell accordingly to capitalize on opportunities. Investors can feel more in control when using active investing strategies.

What is the active investment process? ›

The quantitative active investment process includes the following steps: define the investment thesis; acquire, clean, and process the data; backtest the strategy; evaluate the strategy; and construct an efficient portfolio using risk and trading cost models.

The term active management means that an investor, a professional money manager, or a team of professionals is tracking the performance of an investment portfolio and making buy, hold, and sell decisions about the assets in it.

You may already be making passive investments through an employer-sponsored retirement plan such as a 401(k). If you're not, it's one of the easiest ways to get started and enjoy the benefits of passive investing.

08/22/2023

In general terms, active management refers to mutual funds that are actively managed by a portfolio manager. Passive management typically refers to funds that simply mirror the composition and performance of a specific index, such as the Standard & Poor's 500^® Index.

Active funds are a good option for investors who desire more than average market returns from their ISA. It's an active fund manager's job to perform better than their benchmark, which is typically the wider market, so in theory, active funds are the right investment for investors chasing higher returns.

Active investment is a form of investment strategy that involves actively buying and selling assets in the hope of making profits and outperforming a benchmark or index. An example of an active investor is a hedge fund manager, who constantly monitors the market and trades when they see an opportunity to make money.

Investing activities include purchases of long-term assets (such as property, plant, and equipment), acquisitions of other businesses, and investments in marketable securities (stocks and bonds).