What is Active Management? Does it Work?

“In short, the problem with relying on fund rankings and past performance is that the data indicates very few managers can consistently beat the market.”

Active management involves hiring a manager, or a team of managers, to select and time a fund’s portfolio holdings. Active managers rely on analytical research, market forecasts, price valuation, economic outlooks, and personal judgment to make investment decisions.

Investors who believe in active management implicitly reject the efficient market hypothesis. They believe it is possible to profit by investing in companies whose stock price is mispriced. In short, active managers believe they can outperform the market.

The opposite of active management is passive management, also known as “indexing.” Investors who believe in passive management implicitly accept the efficient market hypothesis.

Some investment advisors advocate active management, others passive. Schultz Collins, Inc. is agnostic: when a manager can demonstrate superior ability to consistently outperform the appropriate index, we are open to including the investment in the portfolio.

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