Active management also called active investing refers to a portfolio management strategy where the manager makes specific investments with the goal of outperforming an investment benchmark index or target return. In passive management, investors expect a return that closely replicates the investment weighting and returns of a benchmark index and will often invest in an index fund.
Ideally, the active manager exploits market inefficiencies by purchasing securities stocks etc. Either of these methods may be used alone or in combination. Depending on the goals of the specific investment portfolio, hedge fund or mutual fund, active management may also serve to create less volatility or risk than the benchmark index. The reduction of risk may be instead of, or in addition to, the goal of creating an investment return greater than the benchmark. Active portfolio managers may use a variety of factors and strategies to construct their portfolio s.
These include quantitative measures such as price—earnings ratios and PEG ratios, sector investments that attempt to anticipate long-term macroeconomic trends such as a focus on energy or housing stocks , and purchasing stocks of companies that are temporarily out-of-favor or selling at a discount to their intrinsic value. Some actively managed funds also pursue strategies such as risk arbitrage and asset allocation. Using the concept of asset allocation, researchers divide active management into two parts [ citation needed ] ; one part is selecting securities within an asset class, while the other part is selecting between asset classes often called tactical asset allocation.
Then those stocks will do better or worse than the class in general. For example, a fund may choose to move money from bonds to stocks, or to focus on companies in a different country. Then one class will do worse or better than the other class. Several of the actively managed mutual funds with strong long-term records invest in value stocks. However, there are many index funds that only hold stocks scoring highly in certain factors like the value factor. The use of managed funds in certain emerging markets has been recommended by Burton Malkiel, a proponent of the efficient market theory who normally considers index funds to be superior to active management in developed markets.
The most obvious disadvantage of active management is that the fund manager may make bad investment choices or follow an unsound theory in managing the portfolio. Unless active management is performed by a robo-advisor the fees associated with active management are generally also higher than those associated with passive management, even if frequent trading is not present, reflecting in part the additional research costs associated with active investing.
Those who are considering investing in an actively managed mutual fund should evaluate the fund's prospectus carefully. Data from recent decades demonstrates that the majority of actively managed large and mid-cap stock funds in United States fail to outperform their passive stock index counterparts. Active fund management strategies that involve frequent trading generate higher transaction costs which diminish the fund's return.
In addition, the short-term capital gains resulting from frequent trades often have an unfavorable income tax impact when such funds are held in a taxable account. When the asset base of an actively managed fund becomes too large, it begins to take on index-like characteristics because it must invest in an increasingly diverse set of investments instead of those limited to the fund manager's best ideas.
Many mutual fund companies close their funds before they reach this point, but there is potential for a conflict of interest between mutual fund management and shareholders because closing the fund will result in a loss of income management fees for the mutual fund company. In , the head of Invesco predicted that up to a third of the asset management firms could disappear. Concept [ edit ] Ideally, the active manager exploits market inefficiencies by purchasing securities stocks etc.
Even in , a 'year of fear' related to rising rates, REITs returned 2. REITs have a long history over fifty years of performance, and have entered the big leagues. If you feel like you've been missing out, don't keep missing out. The Intelligent REIT Investor gives you the information you need to invest wisely and manage your real estate risk effectively. By maintaining a tactical exposure in the brick and mortar asset class, investors should benefit from the information contained in The Intelligent REIT Investor.
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Mueller, PhD. Topics include: Basic information about REITs and the REITs industry Terminology specific to the REIT industry, explained in plain-English Historical REIT industry performance tables and trading perspectives Analysis and equations needed to calculate key metrics used to identify the suitability of companies for investment purposes, illustrated with simple examples This book is perfect for anyone looking for a straightforward, easy-to-understand resource to establish or improve their understanding and analysis of real-estate investment trusts.
The consistency of REITs' earnings and their high dividend yields, together with the low correlation of REIT stock prices with prices of other asset classes, make real estate investment trusts a unique opportunity for investors.
Block has created the ultimate REIT guide. This third edition, fully updated, explains the ins and outs of this attractive asset class in an uncomplicated style that makes it easy for novice and professional investors, as well as financial planners and investment advisers, to find what they need to know. A REIT is a real estate company that offers its shares to the public.
By doing so, a REIT stock becomes like any other stock that represents the holder s ownership in a business. You will also learn about equity, mortgage, and hybrid REITs and the more specific types, including residential, office, industrial, and retail. By reading this book, you will know and understand the pitfalls of investing in REITs, you will know how REITs behave as an investment class and how to best integrate them into your portfolio, and you will know what economic issues affect real estate and the effects these have on REITs.
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Atlantic Publishing is a small, independent publishing company based in Ocala, Florida. Founded over twenty years ago in the company president s garage, Atlantic Publishing has grown to become a renowned resource for non-fiction books. Today, over titles are in print covering subjects such as small business, healthy living, management, finance, careers, and real estate. Using straightforward language and simple example to illustrate important concepts, this book will enable any reader to quickly learn and understand the lexicon and valuation techniques used in REIT investing, providing a wealth of practical resources that streamline the learning process.
The discussion explains terminology, metrics, and other key points, while examples illustrate the calculations used to evaluate opportunities. A comprehensive list of publicly-traded REITs provides key reference, giving you access to an important resource most investors and stockbrokers lack.
It offers banking, commercial banking, an electronic trading platform, and wealth management advisory services to both retail and institutional clients. Active management also called active investing refers to a portfolio management strategy where the manager makes specific investments with the goal of outperforming an investment benchmark index or target return.
In passive management, investors expect a return that closely replicates the investment weighting and returns of a benchmark index and will often invest in an index fund. Ideally, the active manager exploits market inefficiencies by purchasing securities stocks etc. Either of these methods may be used alone or in combination. Depending on the goals of the specific investment portfolio, hedge fund or mutual fund, active management may also serve to create less volatility or risk than the benchmark index.
The reduction of risk may be instead of, or in addition to, the goal of creating an investment return greater than the benchmark. Active portfolio managers may use a variety of factors and strategies to construct their portfolio s.
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