Active management strategies can outperform passive strategies from "summary" of Institutional Investment Management by Frank J. Fabozzi
Active management strategies have the potential to outperform passive strategies in the investment management industry. This concept is based on the belief that skilled portfolio managers can make informed decisions to generate higher returns than simply tracking a benchmark index. By actively researching and selecting investments, managers aim to outperform the market and deliver superior performance to their clients. One key advantage of active management is the ability to react to changing market conditions. Portfolio managers can adjust their holdings based on their analysis of economic trends, company performance, and other factors that may impact the value of their investments. This flexibility allows active managers to capitalize on opportunities and avoid potential risks in the market. Active managers also have the opportunity to use their expertise and knowledge to uncover undervalued assets or identify emerging trends before they are reflected in market prices. By conducting thorough research and analysis, active managers can make strategic investment decisions that have the potential to generate alpha – excess returns above the market benchmark. Another benefit of active management is the ability to manage risk more effectively. By actively monitoring and adjusting their portfolios, managers can implement risk management strategies to protect against market downturns and minimize losses. This proactive approach to risk management can help to preserve capital and achieve more consistent returns over time.- It is important to note that it also comes with higher fees and expenses compared to passive strategies. Investors must weigh the potential benefits of active management against the additional costs involved. Ultimately, the decision between active and passive management will depend on individual investment goals, risk tolerance, and time horizon.
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