Active Management

Investing

Active management is the attempt to outperform a benchmark through stock selection, sector rotation, market timing, or any deviation from a passive index. Active managers charge higher fees (0.5-1.5% expense ratios) for skill, but academic evidence is damning: over 15-20 year periods, 85-95% of active funds underperform their benchmark after fees. Reasons for failure: fees compound, markets are efficient, and survivorship bias inflates reported returns. Some niche areas — small-cap value, emerging markets, distressed debt — may offer better odds for skilled active managers. For most investors in efficient markets (US large-cap), passive indexing wins.