Active Investment Management
What is active management?
Active management, or active investing, is about trying to beat the market. It is about exploiting inefficiencies in the market's ability to price the value of an investment, e.g. the price of a share. The perceived inability of the market to value an investment will lead a fund manager to either buy or sell depending on whether they feel it is under-valued or over-valued respectively.
Fund managers will use a range of techniques to determine whether an investment is worth buying or selling, and at any one time will hope that they hold a portfolio of investments that is capable of beating the average returns of the market they invest in.
The two major factors any active fund manager will rely on to beat the market are fund selection and market timing. If they can pick the right investments and decide to buy or sell them at the right times then they will be doing very nicely.
In order to try to achieve this goal fund management companies invest heavily in research. Fund management companies go to great lengths to undertake meticulous research on potential investment opportunities. They then analyse this research and eventually arrive at a decision as to whether to buy or sell.
Types of active funds available...
Although the types of funds available are many and varied the Investment Management Association has required all funds to be categorised in one of the following groups to make it easier for investors to choose and for funds to benchmark themselves and be compared to their peers.
£ Corporate Bond
£ Strategic Bond
£ High Yield
Absolute Return
Active Managed
Asia Pacific excluding Japan
Asia Pacific including Japan
Balanced Managed
Cautious Managed
Europe excluding UK
Europe including UK
European Smaller Companies
Global Bonds
Global Emerging Markets
Global Growth
Japan
Japanese Smaller Companies
Money Market
North America
North American Smaller Companies
Personal Pensions
Property
Protected/Guaranteed Funds
Specialist
Technology & Telecommunications
UK All Companies
UK Equity & Bond Income
UK Equity Income
UK Equity Income & Growth
UK Gilts
UK Index Linked Gilts
UK Smaller Companies
Advantages of active management...
One of the benefits of choosing an active investment strategy is simply the choice of funds available. Although this can be a drawback as well, as highlighted below, you are sure to find a fund, or range of funds, out there that will suit your specific needs as an investor.
Some people feel more comfortable knowing that their money is being managed by a fund manager.
Indeed a small number of funds have a strong long term track record of performance where they are managed by so-called star fund managers.
Disadvantages of active management...
In practice actively managed funds show a wide variety of results and with the vast array of choice now avilable to investors picking those funds that will perform better than the market is notoriously difficult. In the short term there are actively managed funds that will beat their own sector average (their benchmark index e.g. FTSE All Share Index).
Another significant feature of active funds is their costs. For actively managed funds costs can vary and can be as high as 5-6% on initial investment.
Many people like to know there is someone in charge of their money trying to beat the market. However with such high initial charges there is a lot of pressure on the fund to provide significant performance to justify the costs involved.
It is possible however to reduce these initial charges and sometimes avoid them altogether with the Investor Profile Instant Funds Portfolio and Free Range Portfolio.
How to invest in active funds?
Our Instant Funds Portfolio provides access to over 1500 discounted funds that you can invest in through your ISA.
Our Free Range Portfolio provides access to almost every fund on the market (too many to count) and offers these funds at institutional or wholesale rates, which means many funds are available at low or even no initial charge.
Investor Profile never takes an initial charge on investment as we believe you should have all your money working hard for you from the start of your investment.
