Are you active or passive?

Jonathan Wilson of Barnett & Turner explains two fundamentally different approaches to fund management The world of investment funds can often seem confusing, but a few simple pointers can give you a head start. Perhaps the most important issue you need to take into account is whether any fund is ‘active’ or ‘passive’.

An actively managed fund is run by a fund manager or investment team. These professionals are responsible for all of the fund’s investment decisions, including when to buy or sell assets.

Passive funds are often run by computer software, which tracks or replicates a market or index and includes tracker funds or Exchange Traded Funds (EFTs). The fund management fees tend to be far lower than those of an actively managed fund, reflecting the fact that there is no market analysis involved. These passive funds select all of the assets in a specific market, providing a return that reflects the performance of that market as a whole.

Active fund managers aim to deliver a superior return over the longer term, through extensive research and analysis of markets, sectors and companies. Charges are inevitably higher for active management, because of the amount of work and expertise involved before investment decisions are made.

The higher returns that are expected from an actively managed fund rely on the skills of the investment team. It is important that fund managers can demonstrate a successful track record and that means you should do some careful vetting before making an investment in an actively managed fund.

Find out more by speaking to your professional advisers.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at