In the U.S. mutual fund industry, almost 60% is controlled by equity funds, which are managed by fund
managers, who can operate actively or passively in the markets.
On the one hand, active managers try to seek out mispriced securities, spending time and money in the
search of an arbitrage opportunity. On the other hand, passive portfolios are not being actively managed
meaning that those portfolios, once they are set up, stay the same throughout their time existing. This
makes a manager who oversees this portfolio redundant, saving money for investors who purchase such
an security.
This is why we deal with the question which investment approach is the most profitable
one. To do so we asked several people with various backgrounds, working in the financial
industry what their opinion about this topic is.
Active Versus Passive Management
Our first question addressed the topic Active vs. Passive Portfolio management very much in general. We
did this in order to roughly pre-select our sample and get an overall impression, of how dispersed
opinions about both approaches are. The result we received for the first question was not as dramatic as
expected. We observed two third of all responses to be in favour of active portfolio management. The rest
of our sample stated, that one cannot explicitly say which approach yields better results.
The reasons for claiming active management is superior are very similar among all the respondents in
favour of it. In general every supporter states, that this approach is more prone to yield higher returns in
the long run. This is due to the above average market knowledge of portfolio managers as well as
investment bankers, which made up one third of our sample. Another reason is the higher flexibility of
actively managed securities. Hence such portfolios can be tailored to the particular needs of one
individual investor.
The other third of all respondents testified, that the issue of which portfolio management approach is
better, is not straightforward. According to them it depends on multiple factors which in investment style
is best suited for an individual investor. Some also stated that just a mix of moth approaches is the best
one.
Nevertheless, most of our sources tend towards an active portfolio management approach and no
