ACTIVE MANAGeMENT FAQs
What is active and tactical investment management?
Active and tactical investment management strives to best position portfolios for the current outlook of economic and market conditions, while also trading in and out of positions to take advantage of short term movements using technical and quantitative models.
What is passive investment management?
Passive investment management revolves more around a “buy and hold” process regardless of economic or market conditions. Many passive investment strategies involve index investing or a mix of assets over long periods of time. Passive investment management strives to mimic overall market returns.
Why choose active investment management?
Active investment management provides the opportunity to earn superior returns while seeking to minimize risk. Active management is a differentiated strategy that can offer diversification to one’s overall investment portfolio.
What are the disadvantages of active investment management?
Active investment management typically involves shorter holding periods which may incur more realized capital gains or losses to be reported for that taxable time period. Since active management also involves more trading activity, commissions paid from client accounts to the account custodian may be higher.
Isn’t passive management the solution for all investors?
While a passive investment strategy may be a part of one’s total investment portfolio, we believe that passive investing has limitations. Passive investing does not take into consideration things like economic conditions, market conditions, or monetary/fiscal policy decisions. For many investors that already have a passive part of their portfolio, including an active and tactical approach can offer diversification.
Is passive investing less risky than active investing?
All investment strategies involve risk of loss. Historically we have seen passive investment strategies incur large negative returns over extended periods of time. We have also seen periods where market returns are flat or lackluster. We believe that an active and tactical approach gives investors the opportunity to perform well under all market conditions.
Does active investment management underperform passive investing?
The performance between an active investment strategy and a passive one has been cyclical. Each strategy has outperformed the other during different market periods. We encourage investors to look at third parties for research done on this topic. One example can be read here, written by Hartford Funds.
For any other questions please refer to the Prospect Trading, LLC Form ADV Part 2, or reach out directly to one of our advisors.