Portfolio management is usually about risk and return strategies that are concerned with management of investment assets. Active and passive management are the two schools of portfolio management. The terms active and passive refer to methods by which assets are selected to be included in the portfolio. Once an investor has determined the best asset to invest, he or she chooses an active or passive portfolio investment. Active portfolio management refers to a strategy wherein the manager considers specific investments with the aim of outperforming investment benchmark index.
Active management refers to the use of human element like single managers to manage a firm s portfolio in a more active manner. The purpose of active managers is to outperform passive portfolio management performance. To achieve their objective, active managers rely on forecasts, analytical research, and experience (Hagstrom, 1999). Active managers make concrete investment decisions in relation to particular securities that should be bought, held, and sold in the market. Passive management, also known as indexing, involves a strategy in which investors or mutual funds are not driven by the motive of creating excess returns on an investment benchmark index (Hagstrom, 1999).
Active portfolio management is the opposite of passive management because the latter does not aim at outperforming benchmark index (Cooper, Edgett, Kleinschmidit, 1998). The results achieved from the two investment portfolios are usually different. This is because the management in one investment portfolio aims at achieving excellent results while the other is not driven by virtue of achieving high yields. Active managers perform better than passive managers in various aspects of decision making or exploitation of market inefficiencies. The management in active portfolio management purchases undervalued securities only to sell them at higher price. In addition, active managers short sell securities that have been overvalued to outperform certain investment benchmark index (Cooper et al., 1998).
Passive management, also known as passive investment, is a strategy in which a fund manager makes few portfolio investments decisions so as to cut down on transaction costs. Investment companies which strongly believe that it is possible to outperform the market apply the concepts of employing a professional investment manager to be in charge of the company s mutual funds. Majority of active managers find it hard to beat investment benchmark in a given year. However, this does not mean that such managers cannot outperform passive management performance.
An active portfolio investment is based on five factors that account for most of the dismal track records of active managers. The first factor is accurate forecasting which is extremely challenging as financial markets and economies are complex adaptive systems. The market systems are always filled with positive feedback loops and non-linear effects that are caused by investor decisions made from imperfect markets, competing strategies, and limited cognitive capacities affected by emotions and influence of other investors. The second factor is the presence of portfolio constraints associated with accurate forecasts that are not fully translated into portfolio positions. For instance, most of United States mutual funds have been prevented from taking short positions (Murphy, 2000). Third, accurate forecasting of market is based on combination of superior model and information that make sense. Changes in regulation or underlying economy and investor behavior weaken the advantage provided by previous superior information provided in the market. Fourth, new funds inflows are accepted by successful active funds since they boost manager compensation on the concept of asset management. It is much easier to identify smaller or large investment opportunities that result in higher profits. This concept of fund inflows, however, leads to lower returns and makes most active managers not to meet investment benchmark. Finally, a significant part of returns above the benchmark index that is generated by active portfolio management is lost as a result of higher expenses incurred. In addition, high rates of tax liability generated by higher trading volumes results to a dismal track record of most active managers.
Support for Active Portfolio Management
An actively managed portfolio attempts to beat passive market by means of continually adjusting holdings of a given fund in order to maximize on returns. Passive management essentially deals with buying the market, and in this aspect, they cannot beat any market. In the event of bear market, an active portfolio management has the chance of finding strong securities that trade fairly even during economy recession. Active managers are able to evasive action to minimize damages.
In the case of passive portfolio management, during the burst of a market recession, it is usually very hard to recover such losses in the long term. The fund manager in an active portfolio is able to make efforts of increasing returns through proper buying and selling of securities to work with current market. The support of active management is for a manager to be in a position of detecting price imperfections, observe specific sectors that are strong and make arbitrage swaps. In addition, an active manager should be in a position to adjust maturity of a portfolio so as to account for any changes in interest rates (Flanagan, 1999). The provisions observed or considered by active managers mean that an active portfolio management outperforms passive management.
Another argument in support of active portfolio management outperforming passive management is the return patterns of anomalies concept. Such anomalies include book to market value and low price to earning ratio effect and size effect aimed at achieving higher returns than the market. Management of securities purchases results in superior returns other than sales returns. The evidence for this is proved in an instance wherein active managers have only access to superior information about good news on investment.
Active portfolio managers sell weak securities and hold back strong securities. This strategy has been a challenge to passive managers who venture into an investment without consideration of available market information. The support of active management outperforming indexing investment can be drawn from the concept of relying on theories and dependence on market inefficiency. A good investment strategy such as active management should be based on dependence on market inefficiency rather than on empirical or solid evidence (Hutchinson, 1999). The concept of market inefficiency is observed by many active managers and this results in high returns as a result of using skewed measurements.
A good portfolio management involves written statement that includes the best investment policy. The investment policy outlines portfolio goals and defines risk tolerance measures as well as the level of returns. Planning in both active and passive portfolio management involves re-balancing strategies as well as internal and external communication of investment goals.
A thorough analysis should be done on asset selection and should be based on two principal types of analysis. The two common analyses are technical and fundamental. Technical analysis is based on the aspect of studying share prices in anticipation of better patterns that are used to predict future movements. Fundamental analysis, on the other hand, concentrates on the study of the underlying position of the company. The study aims at evaluating the strengths and weaknesses of future opportunities and threats (Nadina Paul, 2003). Fundamental analysis model uses ratio analysis as a measure of evaluating particular stocks.
The success of active portfolio managers over passive managers is the use of various investment strategies that provide proper guidelines on how to construct their portfolios. One major strategy is the use of quantitative measures such as price earning ratio. Other strategies used by active managers include investments on long-term macroeconomic trends such as housing and energy stocks, purchasing stocks of temporarily low performing companies, and selling the stocks at a discount to their intrinsic value, asset allocation, short position, merger arbitrage, and option writing.
The performance of an active portfolio management depends on the skill of research staff and manager. Skill in investment portfolio is a very important element that leads to out-performance of index counterparts. Out-performance of securities markets can be achieved by active portfolio management. This is true because the major objective of an actively managed portfolio is to produce better returns than those of a passive portfolio management (Campbell Viceira, 2002). Investment in securities is accompanied by various anomalies that are exploited through active involvement of managers.
Pressure from investors to companies has helped managers to outperform passive investment in the long term. Market timing is one factor that makes active portfolio management to outperform passive management. Market timing is based on anticipation of market movements that are measured through certain factors such as trends of interest rates, economic conditions, and other technical indicators. To achieve excellent results, an active manager needs to reallocate between equities and bonds in anticipation of better relative return in the two markets. Macro forecasts of broad based market movements are a necessity in the context of maintaining high profile in active portfolio management (Nadina Paul, 2003). The value of securities is determined to a large extent by forces of market. The performance of active managers is affected by properly monitoring the movements of markets so as to know when the securities are trading low or high. The decisions made in security selection by active managers are based on micro forecasts of individual securities. The securities in this case are usually under priced by market and thus provide a good opportunity for better returns.
Evaluation of portfolio performance involves return measurement within a given period of time. Security analysis is used to describe a portfolio by evaluating the returns act rather than by using a simplistic concept of the certain portfolio to be considered. The objective of performance evaluation is to provide superior means of measuring the performance of stocks and skills of fund manager. Evaluation of index funds performance is done in terms of how portfolio tracks underlying index in relation to terms of returns (Hagstrom, 1999). Costs that are associated with index funds are in rebalancing a given portfolio under the assumption of changes in economic condition and assets weight that are redefined automatically.
Active investing involves two aspects which include being overweight in securities that are undervalued and putting less emphasis in assets that are overvalued. For instance, buying of stock is an active investment that is measurable against the performance of the overall market. On the contrary, passive portfolio management believes in stock index wherein buying individual stock combines asset allocation to stocks (Cooper et al., 1998). The establishment of such strong criteria makes active portfolio management performance outperform passive portfolio management.
The approach applied by active portfolio managers aims at taking advantage of market inefficiencies and is usually accompanied by higher than average costs. Passive portfolio management is based on three common beliefs that make it easy to be outperformed by active portfolio management. First and paramount aspect is the belief of market is always efficient which is not true. Stock markets are characterized by forces of demand and supply that make it hard to predict the value of stocks or securities within a given period of time. It is not sufficient for investors to believe that security markets are always efficient.
A second belief on passive asset management is that market returns cannot be surpassed regularly over a given period of time. Investment in market securities is measured by the returns in different portfolios. The belief that market returns cannot be surpassed is not concrete because of competition. A market that is competitive leads to high levels of returns that surpass certain market returns. It is very important for investors to note that surpassing of market returns is linked to regulation of markets as established by investment provisions. A third belief in passive portfolio management is that low cost investments held for long term provides the best returns. It is not always true that low cost investments will provide best returns (Hutchison, 1999). Active managers believe that high risky investments provide best returns in stock markets. The three beliefs in passive asset management have made active managers to perform better.
Active portfolio investment is believed to outperform passive investment due to consideration of certain strategies. Picking the right investment is one major aspect that has led to out performance of benchmark index. Investment in the right portfolio is achieved through evaluation of certain risks that are associated with market strategies. Risk management is another aspect that should be by an active manager who aims at adding value to a given investment. Risks in any investment make it difficult for managers to choose the best portfolio to investor. Active managers also aim at taking advantage of market trends that help managers to invest in securities in anticipation of high returns (Flanagan, 1999). Managers in active portfolio management consider the element of skill that helps to generate returns. Skilled investment managers generate returns that outperform passive portfolio management.
Actively managed portfolio allows active mangers to take tax considerations into account, and this is a favorable condition in the aspect of security investment. Active portfolio managers are usually skeptical about the efficient market hypothesis. The managers also believe in market segmentation that makes other markets to be more efficient in creation of profits. The objective of active portfolio management is to outperform passive mangers who work on a limited scale of investments. The success of active managers in different investments is as a result of proper management of stocks volatility through investing in a less risky and high performing companies other than investing in the entire market (Ainsworth Fong, 2008). The desire to manage volatility is the key element of ensuring that investors earn more returns. Passive portfolio management or indexing is based on the concept of cost reduction which does not result to good returns.
Investors are the basic elements that contribute to the success of security market, and this is achieved through taking of additional risk in exchange for opportunities that aim at obtaining higher market returns. Investments that are less correlated to stock markets serve a very important aspect of reducing the overall portfolio volatility. This is an advantage of active management that helps managers to diversify their investments for better performance. In other cases, some investors wish to follow certain strategies that underweight industries as compared to market as a whole. In this case, an actively managed portfolio becomes more considerable as it in line with their investment goals.
Several actively managed portfolios are characterized by the presence of long term records invested in value stocks. On the other hand, passively managed funds track broad market indices such as growth and value stocks. Active portfolio management has eventually outperformed indexing investment in the aspect of stocks volatility. The superiority of active portfolio management does not imply that it is the most efficient concept than passive management (Ainsworth Fong, 2008). There are certain limitations or refutations about active management that should be considered for better performance.
Refutation of Support for Active Management
The support of active management is not always efficient due to various reasons such as payment of higher fees by the investors. Investors in an active managed portfolio are charged high fees to cater for expertise and time of fund managers. A comparison figure between an active managed portfolio and indexing investment shows a range of 1.25 and 0.2 respectively. This means that index funds charge a relatively lower fee on expenses than actively managed portfolio. Another concept that refutes the support of active management over passive performance is the issue of risk. An actively managed portfolio takes in more risks than passive funds as a result of the higher rate of fees charged (Murphy, 2000). In order to cover up high rates of charges in an active management, managers take large positions that are usually risky and have the chance of large losses.
Risks in particular instances offer chance for gains, but they also open chances for large losses. Investment is usually related to gambling in which best returns are achieved once a manager makes the best bet. In an efficient market, active portfolio managers are not guaranteed of having superior knowledge to make insightful decisions over passive managers. Personal ability of managers in an efficient market is the reason behind achievement of superior portfolio.
Higher returns are usually accompanied by higher risks in which risks are measured by distribution and variability of possible returns. In certain cases, there are a number of funds that achieve higher returns than markets, and other cases with extreme returns, there is a likelihood that an active portfolio fund will achieve superior or inferior results as compared to passive management. It is true that an actively managed portfolio usually outperforms passive management, but the degree of over performance can be negated when fees, expenses, and taxes have been deducted (Campbell Viceira, 2002). This makes investors consider the various provisions of active portfolio management and passive management.
Active portfolio management outperforms passive management due to application of expert analysis, which leads to informed decisions based on experience, prevailing market trends, and managers judgment. The possibility of higher than index returns is another reason that enables active managers to beat passive managers. Investors are supposed to choose an actively managed portfolio because it can make changes if they believe market may take a downturn.
Investment in assets such as securities and stocks requires investors to have adequate information about the right investment strategy. It is not always sufficient to support active portfolio management at the expense of passive management. Risks involved in either active or passive management and returns from the investment should be the guiding principle to a prospective investor. Portfolio management is a concept of risks and returns in asset investment and investors should choose an investment strategy with less risks but higher returns.
Active management refers to the use of human element like single managers to manage a firm s portfolio in a more active manner. The purpose of active managers is to outperform passive portfolio management performance. To achieve their objective, active managers rely on forecasts, analytical research, and experience (Hagstrom, 1999). Active managers make concrete investment decisions in relation to particular securities that should be bought, held, and sold in the market. Passive management, also known as indexing, involves a strategy in which investors or mutual funds are not driven by the motive of creating excess returns on an investment benchmark index (Hagstrom, 1999).
Active portfolio management is the opposite of passive management because the latter does not aim at outperforming benchmark index (Cooper, Edgett, Kleinschmidit, 1998). The results achieved from the two investment portfolios are usually different. This is because the management in one investment portfolio aims at achieving excellent results while the other is not driven by virtue of achieving high yields. Active managers perform better than passive managers in various aspects of decision making or exploitation of market inefficiencies. The management in active portfolio management purchases undervalued securities only to sell them at higher price. In addition, active managers short sell securities that have been overvalued to outperform certain investment benchmark index (Cooper et al., 1998).
Passive management, also known as passive investment, is a strategy in which a fund manager makes few portfolio investments decisions so as to cut down on transaction costs. Investment companies which strongly believe that it is possible to outperform the market apply the concepts of employing a professional investment manager to be in charge of the company s mutual funds. Majority of active managers find it hard to beat investment benchmark in a given year. However, this does not mean that such managers cannot outperform passive management performance.
An active portfolio investment is based on five factors that account for most of the dismal track records of active managers. The first factor is accurate forecasting which is extremely challenging as financial markets and economies are complex adaptive systems. The market systems are always filled with positive feedback loops and non-linear effects that are caused by investor decisions made from imperfect markets, competing strategies, and limited cognitive capacities affected by emotions and influence of other investors. The second factor is the presence of portfolio constraints associated with accurate forecasts that are not fully translated into portfolio positions. For instance, most of United States mutual funds have been prevented from taking short positions (Murphy, 2000). Third, accurate forecasting of market is based on combination of superior model and information that make sense. Changes in regulation or underlying economy and investor behavior weaken the advantage provided by previous superior information provided in the market. Fourth, new funds inflows are accepted by successful active funds since they boost manager compensation on the concept of asset management. It is much easier to identify smaller or large investment opportunities that result in higher profits. This concept of fund inflows, however, leads to lower returns and makes most active managers not to meet investment benchmark. Finally, a significant part of returns above the benchmark index that is generated by active portfolio management is lost as a result of higher expenses incurred. In addition, high rates of tax liability generated by higher trading volumes results to a dismal track record of most active managers.
Support for Active Portfolio Management
An actively managed portfolio attempts to beat passive market by means of continually adjusting holdings of a given fund in order to maximize on returns. Passive management essentially deals with buying the market, and in this aspect, they cannot beat any market. In the event of bear market, an active portfolio management has the chance of finding strong securities that trade fairly even during economy recession. Active managers are able to evasive action to minimize damages.
In the case of passive portfolio management, during the burst of a market recession, it is usually very hard to recover such losses in the long term. The fund manager in an active portfolio is able to make efforts of increasing returns through proper buying and selling of securities to work with current market. The support of active management is for a manager to be in a position of detecting price imperfections, observe specific sectors that are strong and make arbitrage swaps. In addition, an active manager should be in a position to adjust maturity of a portfolio so as to account for any changes in interest rates (Flanagan, 1999). The provisions observed or considered by active managers mean that an active portfolio management outperforms passive management.
Another argument in support of active portfolio management outperforming passive management is the return patterns of anomalies concept. Such anomalies include book to market value and low price to earning ratio effect and size effect aimed at achieving higher returns than the market. Management of securities purchases results in superior returns other than sales returns. The evidence for this is proved in an instance wherein active managers have only access to superior information about good news on investment.
Active portfolio managers sell weak securities and hold back strong securities. This strategy has been a challenge to passive managers who venture into an investment without consideration of available market information. The support of active management outperforming indexing investment can be drawn from the concept of relying on theories and dependence on market inefficiency. A good investment strategy such as active management should be based on dependence on market inefficiency rather than on empirical or solid evidence (Hutchinson, 1999). The concept of market inefficiency is observed by many active managers and this results in high returns as a result of using skewed measurements.
A good portfolio management involves written statement that includes the best investment policy. The investment policy outlines portfolio goals and defines risk tolerance measures as well as the level of returns. Planning in both active and passive portfolio management involves re-balancing strategies as well as internal and external communication of investment goals.
A thorough analysis should be done on asset selection and should be based on two principal types of analysis. The two common analyses are technical and fundamental. Technical analysis is based on the aspect of studying share prices in anticipation of better patterns that are used to predict future movements. Fundamental analysis, on the other hand, concentrates on the study of the underlying position of the company. The study aims at evaluating the strengths and weaknesses of future opportunities and threats (Nadina Paul, 2003). Fundamental analysis model uses ratio analysis as a measure of evaluating particular stocks.
The success of active portfolio managers over passive managers is the use of various investment strategies that provide proper guidelines on how to construct their portfolios. One major strategy is the use of quantitative measures such as price earning ratio. Other strategies used by active managers include investments on long-term macroeconomic trends such as housing and energy stocks, purchasing stocks of temporarily low performing companies, and selling the stocks at a discount to their intrinsic value, asset allocation, short position, merger arbitrage, and option writing.
The performance of an active portfolio management depends on the skill of research staff and manager. Skill in investment portfolio is a very important element that leads to out-performance of index counterparts. Out-performance of securities markets can be achieved by active portfolio management. This is true because the major objective of an actively managed portfolio is to produce better returns than those of a passive portfolio management (Campbell Viceira, 2002). Investment in securities is accompanied by various anomalies that are exploited through active involvement of managers.
Pressure from investors to companies has helped managers to outperform passive investment in the long term. Market timing is one factor that makes active portfolio management to outperform passive management. Market timing is based on anticipation of market movements that are measured through certain factors such as trends of interest rates, economic conditions, and other technical indicators. To achieve excellent results, an active manager needs to reallocate between equities and bonds in anticipation of better relative return in the two markets. Macro forecasts of broad based market movements are a necessity in the context of maintaining high profile in active portfolio management (Nadina Paul, 2003). The value of securities is determined to a large extent by forces of market. The performance of active managers is affected by properly monitoring the movements of markets so as to know when the securities are trading low or high. The decisions made in security selection by active managers are based on micro forecasts of individual securities. The securities in this case are usually under priced by market and thus provide a good opportunity for better returns.
Evaluation of portfolio performance involves return measurement within a given period of time. Security analysis is used to describe a portfolio by evaluating the returns act rather than by using a simplistic concept of the certain portfolio to be considered. The objective of performance evaluation is to provide superior means of measuring the performance of stocks and skills of fund manager. Evaluation of index funds performance is done in terms of how portfolio tracks underlying index in relation to terms of returns (Hagstrom, 1999). Costs that are associated with index funds are in rebalancing a given portfolio under the assumption of changes in economic condition and assets weight that are redefined automatically.
Active investing involves two aspects which include being overweight in securities that are undervalued and putting less emphasis in assets that are overvalued. For instance, buying of stock is an active investment that is measurable against the performance of the overall market. On the contrary, passive portfolio management believes in stock index wherein buying individual stock combines asset allocation to stocks (Cooper et al., 1998). The establishment of such strong criteria makes active portfolio management performance outperform passive portfolio management.
The approach applied by active portfolio managers aims at taking advantage of market inefficiencies and is usually accompanied by higher than average costs. Passive portfolio management is based on three common beliefs that make it easy to be outperformed by active portfolio management. First and paramount aspect is the belief of market is always efficient which is not true. Stock markets are characterized by forces of demand and supply that make it hard to predict the value of stocks or securities within a given period of time. It is not sufficient for investors to believe that security markets are always efficient.
A second belief on passive asset management is that market returns cannot be surpassed regularly over a given period of time. Investment in market securities is measured by the returns in different portfolios. The belief that market returns cannot be surpassed is not concrete because of competition. A market that is competitive leads to high levels of returns that surpass certain market returns. It is very important for investors to note that surpassing of market returns is linked to regulation of markets as established by investment provisions. A third belief in passive portfolio management is that low cost investments held for long term provides the best returns. It is not always true that low cost investments will provide best returns (Hutchison, 1999). Active managers believe that high risky investments provide best returns in stock markets. The three beliefs in passive asset management have made active managers to perform better.
Active portfolio investment is believed to outperform passive investment due to consideration of certain strategies. Picking the right investment is one major aspect that has led to out performance of benchmark index. Investment in the right portfolio is achieved through evaluation of certain risks that are associated with market strategies. Risk management is another aspect that should be by an active manager who aims at adding value to a given investment. Risks in any investment make it difficult for managers to choose the best portfolio to investor. Active managers also aim at taking advantage of market trends that help managers to invest in securities in anticipation of high returns (Flanagan, 1999). Managers in active portfolio management consider the element of skill that helps to generate returns. Skilled investment managers generate returns that outperform passive portfolio management.
Actively managed portfolio allows active mangers to take tax considerations into account, and this is a favorable condition in the aspect of security investment. Active portfolio managers are usually skeptical about the efficient market hypothesis. The managers also believe in market segmentation that makes other markets to be more efficient in creation of profits. The objective of active portfolio management is to outperform passive mangers who work on a limited scale of investments. The success of active managers in different investments is as a result of proper management of stocks volatility through investing in a less risky and high performing companies other than investing in the entire market (Ainsworth Fong, 2008). The desire to manage volatility is the key element of ensuring that investors earn more returns. Passive portfolio management or indexing is based on the concept of cost reduction which does not result to good returns.
Investors are the basic elements that contribute to the success of security market, and this is achieved through taking of additional risk in exchange for opportunities that aim at obtaining higher market returns. Investments that are less correlated to stock markets serve a very important aspect of reducing the overall portfolio volatility. This is an advantage of active management that helps managers to diversify their investments for better performance. In other cases, some investors wish to follow certain strategies that underweight industries as compared to market as a whole. In this case, an actively managed portfolio becomes more considerable as it in line with their investment goals.
Several actively managed portfolios are characterized by the presence of long term records invested in value stocks. On the other hand, passively managed funds track broad market indices such as growth and value stocks. Active portfolio management has eventually outperformed indexing investment in the aspect of stocks volatility. The superiority of active portfolio management does not imply that it is the most efficient concept than passive management (Ainsworth Fong, 2008). There are certain limitations or refutations about active management that should be considered for better performance.
Refutation of Support for Active Management
The support of active management is not always efficient due to various reasons such as payment of higher fees by the investors. Investors in an active managed portfolio are charged high fees to cater for expertise and time of fund managers. A comparison figure between an active managed portfolio and indexing investment shows a range of 1.25 and 0.2 respectively. This means that index funds charge a relatively lower fee on expenses than actively managed portfolio. Another concept that refutes the support of active management over passive performance is the issue of risk. An actively managed portfolio takes in more risks than passive funds as a result of the higher rate of fees charged (Murphy, 2000). In order to cover up high rates of charges in an active management, managers take large positions that are usually risky and have the chance of large losses.
Risks in particular instances offer chance for gains, but they also open chances for large losses. Investment is usually related to gambling in which best returns are achieved once a manager makes the best bet. In an efficient market, active portfolio managers are not guaranteed of having superior knowledge to make insightful decisions over passive managers. Personal ability of managers in an efficient market is the reason behind achievement of superior portfolio.
Higher returns are usually accompanied by higher risks in which risks are measured by distribution and variability of possible returns. In certain cases, there are a number of funds that achieve higher returns than markets, and other cases with extreme returns, there is a likelihood that an active portfolio fund will achieve superior or inferior results as compared to passive management. It is true that an actively managed portfolio usually outperforms passive management, but the degree of over performance can be negated when fees, expenses, and taxes have been deducted (Campbell Viceira, 2002). This makes investors consider the various provisions of active portfolio management and passive management.
Active portfolio management outperforms passive management due to application of expert analysis, which leads to informed decisions based on experience, prevailing market trends, and managers judgment. The possibility of higher than index returns is another reason that enables active managers to beat passive managers. Investors are supposed to choose an actively managed portfolio because it can make changes if they believe market may take a downturn.
Investment in assets such as securities and stocks requires investors to have adequate information about the right investment strategy. It is not always sufficient to support active portfolio management at the expense of passive management. Risks involved in either active or passive management and returns from the investment should be the guiding principle to a prospective investor. Portfolio management is a concept of risks and returns in asset investment and investors should choose an investment strategy with less risks but higher returns.
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