What is active management?

Active management is a strategy in which a fund manager manages his portfolio by taking into account factors such as market conditions, industry trends and asset performance. While this strategy aims to exceed or deliver returns close to the performance of a particular index, it relies on the portfolio manager to actively select assets and trade, unlike a passive approach.

In active management, fund managers regularly review their portfolios of stocks, bonds, commodities and other asset classes. Based on market analysis and research, they shift, buy or sell assets in their portfolio.

**Pros:**

1. **Control Over Opportunities:** Active management gives fund managers greater control over market opportunities. As market conditions change, managers can adapt their portfolios and evaluate potential return opportunities.

2. **Risk Management:**
Active management strategies provide flexibility for risk management. Managers can monitor the risks of specific assets and reduce portfolio risk by diversifying appropriately.

3. **Performance Potential:**
 Active management aims to outperform the index when managed properly. An experienced and skilled fund manager can identify market trends and include assets with high return potential in his portfolio.

**Cons:**

1. **High Costs:**
 Active management is generally associated with higher costs. Management fees, trading commissions, and other expenses can reduce total returns compared to passive management strategies.

2. **Performance Does Not Meet Expectations:**
While active management strategies aim to exceed the index, sometimes they may not provide the expected performance. Managers' market forecasts and asset selections may not always be accurate, and portfolio performance may be disappointing.

3. **Risk of Overtrading:**
Active management strategies may require frequent trading in the portfolio. This increases transaction costs and can result in excessive trading risk, especially when market conditions are volatile.
Active management may be a suitable option depending on investors' risk appetite, investment objectives and market expectations. However, the returns and costs of this strategy must be carefully evaluated and the expertise and performance of the portfolio manager must be relied upon.

**4. Investment Philosophy and Style:**
 In active management, each fund manager may have an investment philosophy and style that they adopt. Some managers prefer an approach based on value investing principles, while others may pursue a growth-oriented strategy. Investors can choose an investment philosophy and style that suits their investment goals and risk tolerance.

**5. Flexibility and Customization:**
Active management allows investors to customize their portfolios and tailor them to specific investment preferences. Investors can focus on a particular sector or market segment, balance their portfolios according to their risk tolerance, and implement tax-efficient planning strategies.

**6. Response to Market Volatility:**
 Active management strategies can respond more quickly to market volatility and uncertainty. Fund managers can adjust and optimize their portfolios based on factors such as economic conditions, company news and market trends.

**7. Supply and Demand Balance:**
 Active management allows adjusting portfolios according to the balance of supply and demand in the market. Managers can purchase assets with high return potential or avoid overpriced assets.
While active management can provide investors with greater flexibility, customization, and adaptability to market volatility, it can also introduce risks such as higher costs and failure to meet expected returns. Investors should carefully consider the differences between active management and passive management when choosing a portfolio management strategy that suits their personal goals and risk tolerance.

**8. Monitoring and Evaluating Performance:**
Active management strategies ensure regular monitoring and evaluation of portfolio performance. Investors can evaluate the success of managers by comparing the performance of their portfolios with benchmark indices. This allows investors to more closely monitor the performance of their portfolio and make adjustments as necessary.

**9. Risk Management and Protection:**
Active management offers the ability to manage and reduce risks in portfolios. Investors can reduce portfolio risk by spreading risks and using diversification strategies rather than taking excessive positions in a particular sector or asset class. They can also protect against a possible decline in the price of a particular asset.

**10. Flexible Asset Allocation:**
 Active management provides flexible allocation across different asset classes. Investors can reduce risks by maintaining a balanced portfolio across stocks, bonds, commodities and other asset classes. They can also continually adjust asset allocation based on market conditions and expectations

Active management offers investors the opportunity to manage their portfolios more effectively and make the most of market opportunities. However, an experienced and skilled fund manager is required to implement this strategy. Investors should make the right choice between active management and passive management by carefully evaluating the risks and costs.