What Is Active Management?
A fund management approach where a manager actively picks investments trying to beat the market.
The Full Definition
Active management describes a fund where a manager or team actively selects investments and times trades in an attempt to outperform a benchmark index, as opposed to passively tracking one. Active funds charge meaningfully higher fees to cover research and trading costs, but decades of independent data consistently show that most actively managed funds underperform their benchmark index over long periods, after fees. Active management can still make sense in less efficient corners of the market — certain small-cap or international segments — but for core holdings like US large-cap stocks, the odds favor passive index funds.
Real-World Example
An actively managed large-cap fund charging a 1% expense ratio needs to outperform its benchmark by more than 1% every year just to match a comparable 0.03% index fund — a bar most active managers fail to clear consistently.