When you put your money in an actively managed fund, a professional team will invest on your behalf to navigate the risks and capture the opportunities.
Active management refers to the ongoing decision-making process by professional fund managers and their support teams. They select specific investments and adjust the composition of holdings based on comprehensive research and analysis. This active approach allows them to navigate the risks and capture the opportunities they identify. They have the flexibility to make decisions based on their analysis of market trends.
The value of using a fund manager over managing your own investments is that you benefit from their experience. Compared with investing yourself, it’s an approach that could also reduce investment risk, make it easier to keep track of investments, and is likely to come with lower dealing costs.
Active investing is not for everyone and it’s important to weigh up all your options with help from a professional adviser. For instance, you may find that a passive approach (where funds typically track a stock market index) is more suitable for your requirements, and matches your views about costs and risk.
Potential for higher returns
Active management offers the potential for attractive returns over the long term. Through in-depth research on individual companies and sectors, active managers analyse various factors such as financial statements, market trends and economic indicators to make decisions by adjusting the combination of investments as needed.
The primary objective is to achieve attractive returns by selecting specific investments, such as shares, bonds, commodities and property. Moreover, active managers can make decisions about which geographical regions to invest in and how much exposure they want to have.
By identifying undervalued or overvalued investments, and cost management, active managers seek to outperform the markets. They use their professional expertise, research and analysis to make informed decisions. Furthermore, regular feedback, reports and communication can enhance their customers’ understanding and satisfaction with their portfolios.
Professional expertise
Professional expertise is a cornerstone of active management, with seasoned fund managers bringing years of experience and specialised knowledge to the table. Their extensive research skills and valuable market insights can potentially lead to outperformance from a fund.
Active management requires a dedicated team to continuously monitor various indicators, track sector performance and analyse overall market trends. By leveraging the collective insights of professional portfolio managers and research teams, active managers can make informed decisions to adjust the mix of investments as needed.
Utilising research, active managers identify opportunities and seize them to enhance portfolio performance. In contrast, passive management seeks to replicate index performance by maintaining a basket of securities. The holdings in passive portfolios typically undergo fewer changes than actively managed portfolios.
Flexibility
Flexibility is a fundamental aspect of active management, enabling portfolio adjustments in real-time as market conditions evolve. Unlike passive funds, active strategies aren’t constrained to mirroring a benchmark. This flexibility empowers active managers to make tactical shifts, allocate resources to undervalued sectors or regions, and actively manage risks in response to market dynamics.
For instance, when a major central bank such as the US Federal Reserve raises interest rates, active managers can reduce exposure to interest-rate sensitive sectors like utilities, while increasing positions in sectors poised to benefit from higher rates, such as financials.
Fund managers usually have to work within some defined parameters to manage risks. For instance, they may need to stay within asset allocation requirements and can only go overweight or underweight by a certain percentage.
Furthermore, active management can opens doors to niche markets and sectors, offering opportunities beyond mainstream investments. Specialisations in areas like emerging markets or small-cap stocks allow active managers to seek higher returns that might not be readily available in broader markets. This diversification into niche sectors enhances the potential for portfolio growth and can align investments with specific investor preferences and goals.
Diversification and risk
Active managers leverage their skills to capitalise on security selection, strategically allocating capital to companies with superior growth prospects or stronger fundamentals. This approach not only enhances portfolio diversification but also provides opportunities for increased returns.
Moreover, active management offers the potential to reduce risk through diversification across various asset classes, sectors and regions. By spreading investments across different areas, active managers can reduce the impact of market volatility on portfolio performance.
Risk management is a central focus of active management, allowing managers to exit specific holdings or market sectors when risks become too great. They can use a range of tools and techniques to attempt to limit potential losses, secure profits and protect against adverse price movements. This proactive approach to risk management contributes to the overall stability and success of the investment portfolio.
Personalised strategies and responsiveness
Active management allows for swift responses to market events and changing economic conditions. In fast-moving markets, where opportunities and risks can emerge suddenly, active managers can react promptly to protect portfolios and capitalise on emerging trends. This agility can be particularly valuable during periods of market turbulence or economic uncertainty, where the ability to adjust quickly can make a significant difference in portfolio performance.
By staying informed about global economic trends, geopolitical developments, and sector-specific news, active managers can take advantage of market inefficiencies.
Wesleyan Assurance Society’s approach
With a sharp focus on the best interests of our customers, we manage investments actively, with a team of experts to oversee them. Our approach targets sectors and regions with potential long-term value, seeking to maximise growth.
Utilising our knowledge and expertise, our team of fund managers, investment analysts and sustainable investment professionals conduct ongoing market research to identify high-quality investments, aiming to deliver attractive long-term returns. With a focus on outperforming the market over time, we favour equities as a means to achieve this goal.
Additionally, our commitment to a patient buy and hold strategy not only aligns with our investment philosophy but also offers the advantage of lower trading costs.
Having someone managing your investment actively over the long term gives your money the potential to grow by capturing the opportunities and navigating the risks. Speak to a Specialist Financial Adviser from Wesleyan Financial Services to work out an investment plan that’s right for you.
Wesleyan Assurance Society manages the investments and Wesleyan Financial Services is the advisory firm.
The value of your investment, and any income, can go down as well as up and you may get back less money than you originally invested.