Active Management Definition

Active management is an investment strategy where a portfolio manager or a team of managers makes specific investment decisions with the goal of outperforming a benchmark index, such as the S&P 500. Unlike passive management, which aims to replicate the performance of a market index, active management involves continuous analysis and frequent trading of securities to capitalize on market inefficiencies. The managers rely on various methods, including fundamental analysis, technical analysis, and economic forecasting, to identify investment opportunities and risks.

The primary objective of active management is to achieve higher returns than those offered by passive investment strategies. Active managers believe they can leverage their expertise, research, and insights to identify undervalued securities and time market movements effectively. This approach requires a thorough understanding of the market, individual securities, and macroeconomic trends. However, active management often involves significantly higher costs due to frequent trading and need for extensive research, which can impact the overall net returns for investors.

Despite the higher costs and potential risks, many investors choose active management to benefit from the possibility of higher returns and the ability to respond swiftly to market changes. Active management can also offer more flexibility in investment choices, alowing managers to avoid certain sectors or securities they believe to be overvalued or too risky.

Here are three examples of actively managed ETFs:

ARK Innovation ETF (ARKK) - Managed by ARK Invest, this ETF focuses on companies involved in disruptive innovation.

JPMorgan Ultra-Short Income ETF (JPST) - Managed by JPMorgan Asset Management, this ETF aims for current income with a focus on preserving capital.

PIMCO Active Bond Exchange-Traded Fund (BOND) - Managed by PIMCO, this ETF seeks to maximize total return through investment in a diversified portfolio of fixed-income instruments.