Types of Investment Management Approaches

I can say that investment management is a rather sophisticated sphere occupying a very broad scope of strategies to suit various financial objectives, risk aversion, and time.

It is important that investors (individuals and institutions alike) understand the different approaches so that they are able to make their portfolios fit certain objectives, with the expectation of what risks and rewards might come.

Generally, investment management may be classified into active, passive, or hybrid management strategies with their own distinct advantages, challenges, and operational needs.

The strategies will be analyzed acutely to see that the investors are making good decisions on capital allocation, growth prospects, and risk tolerance. In addition, experience of these strategies may provide some clue regarding how managers perform, charge as well as how market environment can influence the short/long-run performance.

Active Investment Management.

Active management is a very hands-on approach where investors make conscious decisions to buy, retain or sell securities in the hope of beating the market.

This strategy requires that focus is paid to market trends, economic signals, company performance reports, and geopolitical events all the time.

In conjunction with the fundamental analysis, technical analysis and qualitative research, the expert managers can find the undervalued assets or can predict the shift in the market.

The good thing about active management is that it may be highly profitable compared to passive options when managing a volatile market or an inefficient market where pricing inefficiencies may be cashed in by analyzing the market actively.

There are trade-offs to active management, however.

Due to the constant research, market observation, and regular trades that must be made, the costs involved are generally high, and when net returns are not efficiently managed, they may decrease.

Also performance can greatly rely on the skill, discretion and judgment of the individual or group handling the portfolio. Shareholders should also expect increased volatility because aggressive actions will increase both returns and losses.

The danger and the additional cost to be incurred can be compensated by the active management of high growth rate particularly in specialized markets or a dynamic type of market that the passive management of the market may also be faltering.