Active vs Passive Managers

15 January, 2024

1 Minute Read

We often hear about passive and active management, what's the difference?

Passive management is an investment strategy that aims to match the return of a benchmark, such as the S&P 500.

Passive management is where a fund’s portfolio mirrors a market index, or benchmark.
A benchmark is a hypothetical portfolio that represents the performance of a section of the market, tailored to the fund type that is measuring against it.

Passive fund returns reflect the performance of the market. Passively managed funds tend to charge lower fees to investors than funds that are actively managed. Passive management is the opposite of active management.

Active managers aim to outperform a designated benchmark by using various investing strategies. Active managers normally have higher fees, as they utilise investment expertise by having a team of investment specialists, who research and select the exact stocks and companies that they want to invest in.

Ethical funds managers are often active managers as this means they can pick and choose their investments, and opportunities can be evaluated using an ethical investment policy. Active managers can divest (sell their stocks) if a company stops aligning with their ethical criteria. It also means they’re able to invest in specific impact companies to tilt their portfolio towards positive, future focused investments.

Here at Pathfinder, we are active managers and our investment strategy involves actively aiming to mitigate loss and maximise returns. We have a dedicated investment team who assess and select investments to ensure we’re investing with the wealth and well-being of our members in mind.

Learn more about active management from Chief Investment Officer, Paul Brownsey on The Everyday Investor podcast.