Active Investing
A strategy that seeks to outperform the market through security selection and market timing.
What is Active Investing?
Active investing involves making specific buy and sell decisions in an attempt to outperform a benchmark index. Active managers use fundamental analysis, technical analysis, macroeconomic forecasts, and other tools to identify mispriced securities. Active strategies typically carry higher fees due to research costs and trading activity. While some active managers deliver superior returns over shorter periods, SPIVA research consistently shows that most active funds underperform their benchmark net of fees over 10- to 20-year periods.
Example
An actively managed large-cap fund that charges 1.0% per year must outperform its benchmark by at least 1.0% annually just to break even with a passive alternative — a hurdle most fail to clear consistently.