Passive Investment Management
Passive investment management, in contrast, tries to copy the performance of a given market index such as the S&P 500 or the MSCI World Index instead of trying to outperform the index.
The buying and selling involved are minimal in this strategy, therefore the cost of operation is low and there is no need to continuously monitor the portfolio.
Passive management is particularly appealing to investors who desire long-term stability, certainty of growth and the introduction to the market at an economically affordable price.
The passive portfolio is a well-crafted attractive source of long-term returns, and as such an immensely appealing investment in a retirement account, an endowment and a wealth accumulation plan.
Its major advantage is that passive management is easy to run.
Investors also have the advantage of diversifying a portfolio of assets through indexes which helps in overcoming the performance of a particular security that is performing poorly.
Passive strategies may not usually produce high returns in the short term, but when used in the long term they can be highly efficient in terms of wealth building, because they are consistent and come with relatively lower fee charges.
In addition, emotional trading creates behavioral risks which passive investing removes because the investor is less likely to make impulsive decisions based on what is happening in the market.
This consistency and dependability has led to the increased popularity of passive investment strategies among retail investors as well as the large institutional clients in the global market.
Hybrid Investment Management.
Hybrid investment management combines the elements of the active and passive investment strategies to offer a flexible and adaptive approach.
Under this model, the portfolio managers can actively manage a section of the portfolio and track the indices passively with the rest.
This allows the investor to both receive the potentially higher returns of actives and the advantage of stability, diversification and reduced costs of passives.
Hybrid strategies would be of particular benefit to investors with such complex or asset diversification financial requirement and moderate risk and growth prospects.
The hybrid methodology can be personalized to suit the market and customer preferences.
An example of this would be when an investor puts growth-oriented stocks or any other investment in an emerging market in an active and core and stable holdings into a passive index.
This offers an actively managed portfolio that will adapt to the market environment without exposing the investor to risks or fees that are unjustified.
Hybrid management also offers strategic flexibility; the investor or manager is free to alternate between active allocations and passive allocations over the economic cycles, opportunities or long term objectives in the industry.
A hybrid approach to investment management is a middle ground, marrying efficiency, flexibility and potentially high performance together and balancing costs and risks in a smart manner.