Asset management uses two primary investment strategies to generate financial returns. These are active and passive asset management, and in this blog, we offer an overview of each approach.
Active asset management
Active asset management is all about outperforming a certain benchmark, such as the S&P 500 Index. Portfolio managers and investors who follow an active asset management strategy will attempt to achieve this goal by purchasing and selling securities, including stocks, options or futures.
Adherents to this approach spend some of their time carefully evaluating market trends, political events, macroeconomics and other news pertinent to certain geographies. This information will then be used to influence active investors on the purchase or sale of assets.
As such, a large number of mutual funds opt for active management. Active managers strive to maximise greater returns than fund managers, and the fees on actively managed funds and portfolios are high because clients are paying more for the fund manager’s expert insights.
Passive asset management
Passive asset management, on the other hand, entails purchasing assets that are listed on a benchmark index. This approach allocates portfolios as a market index would, while applying a similar weighting. It seeks to generate similar returns to those offered by the chosen index, and is typically done via ETFS (exchange-traded funds) or benchmark-tracking mutual funds. The aim is to match a benchmark return. It is ordinarily cheaper to go down the passive management route, because you are not reliant on a manager for their insight.
The SPY (SPDR S&P 500 ETF Trust), for instance, is a fund that is passively managed for long-term investors and aims to reflect the S&P 500 Index’s performance. It manages the ETFS passively by acquiring major stocks listed on the S&P 500 Index. SPY has a low expense ratio as a consequence of its low turnover ratio.
Potential investors weighing up asset management options in Cheshire are urged to contact our team of specialist financial experts at Hartey Wealth Management. Together, we can discuss the ideal active or passive management strategy to help support your financial interests.
