What is active portfolio management?

Active portfolio management, also known as active investment or active management, is an investment style in which the manager deliberately deviates from a benchmark, such as an index, with the aim of achieving extra returns. This is achieved through asset allocation, stock picking (selection of specific securities) and market timing. The portfolio manager attempts to beat the market by making better choices than a passive strategy would. Active management usually demands a higher fee, often between 1% and 2% per year, which can be a large part of the return in case of low results.

Example: In Europe, the costs for actively managed funds average 1.38%, compared to 0.31% for passive funds.