Active management is a management model used in investment funds, in which the shares are chosen with the objective of surpassing the profitability obtained in the market indexes.
When compared to its opposite model ( passive administration ), the fund manager with active administration has more autonomy to choose the securities. However, as it offers a greater return promise, it also holds more risk.
How does active administration work?
Before unraveling this modality, it is important that you keep in mind the general context. Do you know what investment funds are, how they work and their main agents?
Soon, come on!
The investment fund is a type of financial investment, composed by the union of several investors. This group commits, after adding resources through the individual contribution of each of its members, to allow a manager to manage its capital.
The manager’s role, then, is to decide where and when the money in question will be allocated.
But more than that, in the case of funds with active management, the manager is responsible for studying the companies and finding specific opportunities for profitability.
Remember: in this type of fund, earning more than the indicator is always the biggest goal.
What are the advantages of investing in funds with active management?
For those who invest in funds with active management, the biggest advantages of this modality are: trust and return.
Trust is given, in fact, by the characteristics of investment funds in general.
The stock market has no pity for amateurs. You should already know this, even if you are just getting ready to start investing (by the way, congratulations! Devouring the content of Mais Retorno was really a great decision for this purpose).
So, having the support of an expert, who can clearly see where you only see confusion is quite a support, right? It’s like riding a bicycle for the first time, but still have the wheels to balance and minimize the risks of falling.
The second major advantage of funds with active management is the promise of a higher return.
While passively managed funds remain at the same level as the indices (which is incompatible with the strategy of certain investors), active management is able to outperform them.
For that, having a good manager in front of the fund is essential. After all, the wisdom of your decisions and the profitability achieved will be closely linked.
What are the disadvantages of investing in funds with active management?
If the investment world were governed by only one supreme law, it would probably say: the higher the return, the greater the risk .
And if your short-term memory is in good working order, you will soon remember that, in citing the benefits of actively managed funds, we speak of the promise of high returns.
Therefore, the threat of loss is greater in this modality. Devaluations and losses will be the result of poor choices and not the fall of an index, and may even run all capital.
Another disadvantage is the cost of administration fees. As the manager spends more hours at work, studying, researching and devising strategies, it is normal for a higher percentage to be charged on the investment.
What are the differences between funds under active and passive management?
As we have seen, funds with active management give the manager a certain freedom to search for companies and choose shares. Its main objective is to obtain profitability higher than that of financial indicators.
In the case of funds with passive administration, the manager is obliged to follow the indicators. Their goal is, purely, to achieve the same profitability as them.
There are no “bets”, which, in general, reduces risks, but also offers less potential return to investors.