men and women wish excellent wristwatches are who sells the best replique montre rolex. normal fingers in making often is the components involved with best swiss replicas relojes.
1:1 copy the real original fake watches.
on the contrary, cheap replica watches under $51 weighing scale is almost certainly valid and most well-built.
swiss replica watches the big ten started fees are raised yet unfortunately customers continues to be feel valuable.

Active vs Passive Investing - What Is Index Investing?


Active vs Passive Investing - What Is Index Investing?


The main difference between Active and Passive Fund Management lies in how active and passive investment strategies are implemented.

Active Fund Management:

⦿ Actively managed fund attempts to beat market performance through superior security selection. That is to say; active investments fund manager tries to pick the stock that will perform much better than the market average. 

⦿ In other words, this fund manager is looking to select the winning stocks, as these companies will presumably outperform their peers. There is a theory that allows managers to contemplate stock picking as a viable way of improving a portfolio's performance.

⦿ The line of thought rests on the idea that markets are inefficient, and there are time lapses between data, news or headlines being released and the subsequent change in price needed to reflect the new information.

⦿ Skilful managers, therefore, are capable of taking advantage of market inefficiencies and improve on the broad market performance.

Passive Fund Management:

⦿ Passively managed funds track the broad market usually represented by an index. Passive fund managers do not attempt to outperform the market; in general, passive fund managers strive to have a portfolio that best reflects a broad market index.

⦿ The thought behind passive investment strategy is that a broad and well-diversified portfolio greatly reduces the risks involved with stock picking. It also means that passive investment funds portfolio will mimic the returns achievable by the index.

⦿ Why does the stock market as a broad asset class creates positive returns? The theory behind this question is that investors need to be rewarded for the risk of holding corporate stock. This security is last in line to be paid out in the case of bankruptcy, pays variable dividends and is subject to various risks.

⦿ However, stocks are also the asset class which best holds the value of a corporation, as the company's value increases so does the value of its shares, in this way investors receive their compensation for holding stocks.


Index Investing is passive investment strategy to build a broad and well-diversified portfolio which greatly reduces the risks involved with stocks to invest in. Passive investment portfolio will mimic the returns achievable by the index.


With passive portfolio management, it is therefore not necessary to hold concentrated amounts of a few stocks in an attempt to pick the best performers. There is much more risk and a low chance of actually picking the right stocks.

Imagine a portfolio that holds a broad well-diversified portfolio through a specific number of ETFs, where the total number of different stocks is 200. If one of the companies where to even go completely bankrupt, the total loss for the portfolio would not be more than 0.5%. On the other hand, if a portfolio constructed with only 10 stocks were to see one of its investments fail, it would equal a loss to the portfolio of 10%.

Most actively managed Mutual Funds are not allowed to have high concentrations of any particular stock, but picking the wrong stock can have severely adverse effects on the overall performance of the portfolio. The fact that they hold a selection rather than the broader market makes these funds vulnerable to selection risk.


When looking at performance comparison, it has been very hard over the decades to find sustained periods where actively managed funds outperformed its passively managed peers. It is important to understand the concept of sustained positive returns.

Active fund managers that perform well can be found and usually their outperformance occurs during a limited period of time. However, investing in the stock market with index funds involves a long-term investment horizon. Investing should be considered as a marathon rather than a sprint. It is important then to look at long-term results rather than short-term returns of 1 or 2 years.

When comparing performance between passive and active funds the most interesting metric we have is to look at how often active funds performed in comparison to passive funds. If most of the time active funds outperform passive funds it should mean we are going to be better off investing in the former.

Data shows the opposite to be true. The table below shows the percentage of passive and active management funds that outperformed their passive index.

active vs passive investments

The Lowest Cost column represents passive management funds; they are the funds that charge the lowest fees. The Highest Cost column represents actively managed funds as they charge the highest fees.

We can see that over the 10 year period ending December 31, 2014, active funds underperformed compared to passive funds in all categories. In the US Large Value sector, passive funds outperformed their index 66.3% of the time while active funds outperformed only 18.6% of the time. The above table from Morningstar shows how passive funds are more likely to outperform in all categories as compared of active funds.


Survivorship rates are also much higher for passive funds compared to actively managed funds. The table below shows that at the end of the 10 year period only 50.22% of active funds were still in business, while for passive funds that rate was 64.91%. 

The table also shows that average performance in terms of annualized returns was also higher for passive funds. Annualized performance for passive funds on an asset weighted basis was 0.94% higher over the 10 year period, and passive fund performance also outperformed active fund performance for all other trailing periods measured.

asset management

The table also shows that higher fees do not generate higher returns. Performance by fee quartile was highest for passively managed funds in the 25th percentile; that is to say funds with fees in the lowest quarter.

Although there may be a role for actively managed funds for certain investors, data shows that in the long run, passively managed funds have lower fees, higher survival rates and better chances of outperforming their index.

Author: Gino D'Alessio 

Comments are closed.
Showing 0 Comment

Build the best diversified online ETF portfolio with help of the Ways2Wealth portfolio tool. Investing in shares without a independent financial advisor and take your wealth management in your own hand with this online investing tool. No further financial advice or investment funds is need for professional portfolio management. Try the asset management tool and you never have to ask yourself how to invest money again.

How to develop a diversified online finance portfolio


Keep yourself up-to-date with our ever-evolving product features and technology. Enter your e-mail address & subscribe to our newsletters.

About Our Company

We are scientists with a research focus on financial modelling, risk analysis and artificial intelligence. We have worked for years for the financial industry and have developed our own proprietary models which we have leased to banks, hedge funds and military special units. With this site we are going to help normal people to make smarter financial decisions. 

Get in touch

This site is run as a private non profit blog. 

Ways2Wealth (European Trade Mark Number 014585351)

Follow Us

Help your friends to manage their money, tell them about us.

> >123movies