{"concept":{"id":27,"slug":"active-management","term":"Active management","shortDefinition":"A fund management style in which a management team makes ongoing decisions about which assets to buy and sell, trying to beat a benchmark index.","longDefinition":"Under active management, a management team makes ongoing decisions -- what assets to buy, when, and in what proportion -- with the goal of achieving a return higher than a benchmark index. That continuous work of analysis and decision-making translates into higher management costs than a passively managed fund. Active management offers the possibility of beating the market, but also the risk of failing to do so once its higher costs are factored in -- with no guarantee of a result."},"relations":{"requirement":[],"contrast":[{"concept":{"id":28,"slug":"passive-management","term":"Passive management","shortDefinition":"A fund management style that tracks a benchmark index without a manager actively deciding which assets to pick.","longDefinition":"Under passive management, a fund simply tracks a benchmark index, the same logic already seen with the index fund, without a manager actively deciding which assets to pick or when to buy and sell. It isn't \"doing nothing\": the fund is still being managed, tracking the index with precision, simply without active choices about what to pick. Because it doesn't require that continuous analysis work, its management costs tend to be lower than an actively managed fund's."}}],"related":[],"calculatedBy":[]},"curricularPosition":[{"id":23,"moduleId":8,"slug":"active-vs-passive-management","title":"What is the difference between active and passive management?","summary":"You understand what an investment fund is and distinguish active management from passive management.","bodyMarkdown":"## Objectives\n\nBy the end of this lesson you understand what an investment fund is and distinguish active management from passive management.\n\n## Content\n\nAn investment fund is a vehicle that pools money from many investors to invest it jointly in a portfolio of assets, managed by a professional management company. You already know one specific case -- the index fund, covered in the previous module -- but not all funds work the same way.\n\nThe main difference lies in how it's decided what to buy. Under **passive management**, the fund simply tracks an index, like the index fund already covered, without a manager actively deciding which assets to pick or when to buy and sell. Under **active management**, a management team makes ongoing decisions -- which assets to buy, when, and in what proportion -- with the goal of achieving a return higher than a benchmark index.\n\nThat continuous work of analysis and decision-making that active management requires translates into higher management costs than a passively managed fund's -- you'll see the real impact of that cost difference in this module's last lesson.\n\nNeither is superior in absolute terms. Active management offers the possibility of beating the market, but also the risk of failing to do so once its higher costs are factored in. Passive management gives up that possibility in exchange for tracking the market at a lower, more predictable cost.\n\n## Example\n\nA passively managed fund that tracks a broad stock market index simply buys the same companies that make it up, with no one actively deciding which ones to pick. An actively managed fund investing in that same market, on the other hand, has a management team deciding which specific companies to buy, trying to outperform that index.\n\n## Common mistakes\n\n- Thinking active management always beats the market just because it has a management team making decisions -- there's no guarantee of a result, and its higher costs reduce net return from the start.\n- Confusing passive management with \"doing nothing\" -- the fund is still being managed, tracking the index with precision, simply without active choices about what to pick.\n\n## Summary\n\nAn investment fund pools money from many investors into a common portfolio. Passive management tracks an index without active decisions; active management tries to beat the market with ongoing decisions, in exchange for higher costs.\n\n## Self-check\n\nWhat does a manager decide in an actively managed fund that no one decides in a passively managed one?\n\nWhy does active management usually have higher costs than passive management?","bodyHtml":"<h2>Objectives</h2>\n<p>By the end of this lesson you understand what an investment fund is and distinguish active management from passive management.</p>\n<h2>Content</h2>\n<p>An investment fund is a vehicle that pools money from many investors to invest it jointly in a portfolio of assets, managed by a professional management company. You already know one specific case -- the index fund, covered in the previous module -- but not all funds work the same way.</p>\n<p>The main difference lies in how it's decided what to buy. Under <strong>passive management</strong>, the fund simply tracks an index, like the index fund already covered, without a manager actively deciding which assets to pick or when to buy and sell. Under <strong>active management</strong>, a management team makes ongoing decisions -- which assets to buy, when, and in what proportion -- with the goal of achieving a return higher than a benchmark index.</p>\n<p>That continuous work of analysis and decision-making that active management requires translates into higher management costs than a passively managed fund's -- you'll see the real impact of that cost difference in this module's last lesson.</p>\n<p>Neither is superior in absolute terms. Active management offers the possibility of beating the market, but also the risk of failing to do so once its higher costs are factored in. Passive management gives up that possibility in exchange for tracking the market at a lower, more predictable cost.</p>\n<h2>Example</h2>\n<p>A passively managed fund that tracks a broad stock market index simply buys the same companies that make it up, with no one actively deciding which ones to pick. An actively managed fund investing in that same market, on the other hand, has a management team deciding which specific companies to buy, trying to outperform that index.</p>\n<h2>Common mistakes</h2>\n<ul><li>Thinking active management always beats the market just because it has a management team making decisions -- there's no guarantee of a result, and its higher costs reduce net return from the start.</li><li>Confusing passive management with &quot;doing nothing&quot; -- the fund is still being managed, tracking the index with precision, simply without active choices about what to pick.</li></ul>\n<h2>Summary</h2>\n<p>An investment fund pools money from many investors into a common portfolio. Passive management tracks an index without active decisions; active management tries to beat the market with ongoing decisions, in exchange for higher costs.</p>\n<h2>Self-check</h2>\n<p>What does a manager decide in an actively managed fund that no one decides in a passively managed one?</p>\n<p>Why does active management usually have higher costs than passive management?</p>","sortOrder":1,"readingMinutes":5,"difficulty":"Básico","url":"/en/academy/fundamentals/investment-funds/active-vs-passive-management"}],"graphSummary":{"root":{"type":"concept","id":"27","depthFromRoot":0,"entity":{"type":"concept","slug":"gestion-activa","term":"Gestión activa","excerpt":"Estilo de gestión de un fondo en el que un equipo gestor toma decisiones continuas sobre qué activos comprar y vender, intentando batir a un índice de referencia."}},"depth":1,"returnedNodes":1,"truncated":false,"hasCycle":false,"nodes":[{"type":"concept","id":"27","depthFromRoot":0,"entity":{"type":"concept","slug":"gestion-activa","term":"Gestión activa","excerpt":"Estilo de gestión de un fondo en el que un equipo gestor toma decisiones continuas sobre qué activos comprar y vender, intentando batir a un índice de referencia."}}],"edges":[]},"relatedNews":[],"relatedEntities":[]}