What is active management? Definition and examples
In short, active portfolio managers hand select stocks they think have potential to beat the market (by contrast, passive fund managers may use indices to mirror market performance).
Actively managed portfolios are distinct because…
- Managers use their research and professional knowledge to choose which securities to buy and sell (and when)
- They seek to outperform a benchmark index, such as the S&P 500, aiming for greater returns over time
Because there are human decision makers behind the stock picks, active funds don’t all follow the same fixed strategy. A portfolio manager’s stock picks could depend on many factors—including their firm’s philosophy, their own experience and convictions, and the fund’s objective.
At Motley Fool Wealth Management, our active Portfolio Managers handpick stocks we believe could potentially outperform the market, based on a framework we call the Four Pillars of Quality. We use rigorous standards because our active funds are highly concentrated—which, we believe, gives each security the potential to meaningfully impact overall returns.
While all our active funds embrace a high-conviction investing approach, each has a distinct objective. For example, our U.S. Small and Mid-Cap fund (as the name suggests) seeks to own domestic smaller- and mid-sized businesses, whereas our International fund gives investors exposure to global markets with markedly different characteristics than the U.S. markets. The Portfolio Managers’ stock picks therefore must meet both the Four Pillars of Quality AND align with their fund’s objective.