Being a client of Superannuation Advice Australian most likely means that you’ve heard the term ‘Active Management’ or ‘Actively Managed Funds’ used fairly often. That is because we believe that this form of investing will be most beneficial to the superannuation balances of our client over the long term, but what exactly do these terms mean?
The term Active Management means that a professional fund manager or a team of professionals is tracking the performance of your investment portfolio and regularly making buy, hold, and sell decisions about the assets inside of it. The goal of the active manager is to outperform the overall market, and although some people may not like to admit it, they have shown that it is possible to outperform the market – especially in volatile times such as those we are living through now.
Active managers may rely on investment analysis, research, and forecasts as well as their own judgment and experience in making decisions on which assets to buy and sell and they measure their own success by measuring how much their portfolios exceed (or fall short of) the performance of a comparable unmanaged index, or passive investment.
A fund manager’s expertise, experience, and judgment are employed by investors in an actively managed fund. An active manager who runs an IT industry fund might have extensive experience in the field and might invest in a select group of tech-stocks that the manager believes are undervalued.
Active fund managers have more flexibility. There is more freedom in the selection process than some other funds which aim to closely mirror the market as a whole, such as an index.
Under a core satellite strategy, you are able to access the best of both worlds with the passively managed index fund acting as the core, while the actively managed satellite fund offers you the potential for outperformance of the market as a whole.
- By Christian Stanger