Active investing

Active investing is the opposite of the strategies adopted by passive investing. An active investment strategy is an attempt to out-perform the market through picking and trading securities or through asset allocation.

An active investor therefore expects to be able to find areas of market inefficiency to exploit. There are a number of strategies that an active investor may use.

There is considerable controversy about the benefits of active investing. It certainly plays an invaluable role in the allocation of capital, and, in some form, is crucial to the health of a capitalist economy. However, the average investor is better off adopting a passive strategy.

Many supposedly active funds and portfolios are in fact closet trackers. A low tracking error is a useful indication of this.