Active

Active Portfolio Management Strategy

Active Portfolio Management Strategy refers to a portfolio management strategy that involves making precise investments for outperforming an investment benchmark index.

Investors who believe in active management do not follow the efficient market hypothesis. They believe it is possible to profit from the stock market through any number of strategies that aim to identify mispriced securities.

Investment companies and fund sponsors believe it's possible to outperform the market, and employ professional investment managers to manage one or more of the company's mutual funds.

The manager makes specific investments with the goal of outperforming an investment benchmark index by exploiting the market inefficiencies by buying undervalued securities or by short selling overvalued securities. Any of these procedures can be used alone or in combination.

Active portfolio managers may create less volatility (or risk) than the benchmark index depending on the targets of the specific hedge fund or mutual fund or investment portfolio. The risk reduction is considered as goal of creating an investment return larger than the benchmark. They use large number of factors and strategies for constructing their portfolio.

Strategies for Constructing the Portfolio

· Quantitative measures like price/earnings ratio (P/E ratios) and PEG ratios

· Sector investments that are expected to deliver long-term macroeconomic trends

· Buying stocks of companies that are disliked temporarily

· Selling at a discount of their intrinsic value

· Merger arbitrage

· Short positions

· Option writing

· Asset allocation

Active Portfolio Management Strategy Performance

The performance of an actively-managed investment portfolio relies on the proficiency of the portfolio manager and research staff. There are many mutual funds that are supposed to be actively managed and they stay invested irrespective of market conditions along with only negligible adjustments...