Active management refers to the making of individual investment decisions, such as in which securities to invest, by a professional manager or individual investor in order to create an investment portfolio.
Selections made within an actively managed investment portfolio will differ from the equivalent values of the selections in the related market index or benchmark.
The aim of active management is not only to outperform a designated benchmark or index, but also to ensure appropriate investment diversification.
Active management includes a range of individual risk-managed portfolios, which can be measured against ESG standards, sustainability ratings and more.
Active managers consider market trends, economic data, company performance, and much more in order to make informed investment selections.
The aim is to obtain higher total returns, for any level of volatility and market risk taken on.
Usually, this results in higher running costs in the form of management and expense fees, which is due to the expertise and research required to run a fund's portfolio of holdings, with the necessary monitoring, ongoing research, review and updating of preferred investment holdings.
Active management can play an important role in investment portfolios, such as to diversify asset classes and holdings, mitigate risks and optimise risk-adjusted total returns.