Concept
Ideally, the active manager exploits market inefficiencies by purchasing securities (stocks etc.) that are undervalued or by short selling securities that are overvalued. Either of these methods may be used alone or in combination. Depending on the goals of the specific investment portfolio, hedge fund or mutual fund, active management may also serve to create less volatility (or risk) than the benchmark index. The reduction of risk may be instead of, or in addition to, the goal of creating an investment return greater than the benchmark.
Active portfolio managers may use a variety of factors and strategies to construct their portfolio(s). These include quantitative measures such as price/earnings ratio P/E ratios and PEG ratios, sector investments that attempt to anticipate long-term macroeconomic trends (such as a focus on energy or housing stocks), and purchasing stocks of companies that are temporarily out-of-favor or selling at a discount to their intrinsic value. Some actively managed funds also pursue strategies such as merger arbitrage, short positions, option writing, and asset allocation.
Read more about this topic: Active Management
Famous quotes containing the word concept:
“I was thinking what an interesting concept it is to eliminate the writer from the artistic process. If we can just get rid of these actors and directors, maybe we got something here.”
—Michael Tolkin, U.S. screenwriter, and Robert Altman. Griffin Mill (Tim Robbins)
“Jesus abolished the very concept of “guilt”Mhe denied any cleavage between God and man. He lived this unity of God and man as his “glad tidings” ... and not as a prerogative!”
—Friedrich Nietzsche (1844–1900)
“I think that Richard Nixon will go down in history as a true folk hero, who struck a vital blow to the whole diseased concept of the revered image and gave the American virtue of irreverence and skepticism back to the people.”
—William Burroughs (b. 1914)