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Refers to the use of a human element - such as a single manager, co-managers, or a team of managers - to actively manage a fund's portfolio. Active managers rely on analytical research, forecasts and their own judgment and experience in making investment decisions on what securities to buy, hold and sell. The opposite of active management is called passive management, better known as indexing.
Investors who believe in active management do not follow the efficient market hypothesis. They believe it is possible to profit from the stock market through any number of strategies that aim to identify mispriced securities.
Investment companies (fund sponsors) who believe it possible to outperform the market employ professional investment managers to manage one or more of the company's mutual funds. The objective with active management is to produce better returns than those of passively managed index funds. For example, if you are a large-cap stock fund manager, you want to beat the performance of the Standard & Poor's 500 Index. Unfortunately, for a large majority of active managers, this has been "mission impossible." This phenomenon is simply a reflection of how hard it is, no matter how smart the manager, to beat the market.
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