How active management can add value

How active management can add value

Active management is an approach to investing which maintains that portfolio managers can produce greater returns for a given strategy than can be achieved through passively holding all stocks in the market or holding a given index. Often, active portfolio managers will take advantage of perceived opportunities by holding a more concentrated portfolio of securities and trading more frequently than a passive broad market portfolio.

Active investment decisions are made based on varied criteria. For example, value-based active managers tend to make investment decisions based on a company’s shares reaching a specific price, a level at which the manager perceives value. For other active managers, buy and sell decisions may have nothing to do with the performance of a specific stock but rather are triggered by overall market or changing macro-economic trends. Active investors range from those involved in day-trading to those who make far less frequent shifts in their portfolios.

Managers can add real value for certain investors

Our experience at IBKR Asset Management has demonstrated multiple examples of managers who have developed compelling investment portfolios capable of adding value. Many of these managers have delivered excess returns in their personal portfolios for decades, and they are now beginning to do so for our clients. Among the edges that IBKR Asset Management managers aim to capitalize on are the following:

  • Some of our portfolio managers utilize industry-specific experience in their investment strategies and capitalize on dramatic changes in industry or company fundamentals.
  • Managers have global expertise, so they can take advantage of local market knowledge and conditions .
  • Managers have flexibility to use trading techniques that include short-selling – betting that a stock will go down – as well as more sophisticated strategies.
  • Value-based active managers may apply strict balance sheet and competitive marketplace analysis in the effort to find stocks undervalued in the market.
  • Active managers may aim to capture momentum apparent in the market and in specific security prices by using a quantitative strategy.
  • Managers can take advantage of trends , for example market volatility, which has increased in recent years due to computer trading, which moves large blocks of stocks at extraordinary flash speed.
  • Some managers are active traders who take an aggressive approach to keeping portfolios current based on rapidly changing conditions.

IBKR Asset Management provides access

Many individual investors find it tricky to implement an active strategy in their own portfolios. They either don’t have the time or the expertise to make active trades, or haven’t found a money manager they fully trust or believe in.

Our goal is to provide low-cost access to talented global investment managers without paying for an expensive financial adviser. IBKR Asset Management provides a source of active managers with varied goals and strategies.

For further reading on this topic, check out Smarter Investing′s blog article on active versus passive management here.