Ms Wang Essay

2938 Words12 Pages
Executive Summary 2 Passive Investing 2 a) Definition and application of passive investing: 2 b) Rationale for passive management 2 c) Efficient Market Hypothesis 3 d) Index fund 4 e) Buy and hold strategy 5 f) Tracking error 5 g) Transaction cost 6 h) Advantages of passive management: 6 i) Disadvantages of passive management: 8 Active investing 8 a) Definition and application of active investing 8 b) Rationale for active management 8 c) How to choose “right” securities at the right time 9 d) Relevant costs 9 e) Advantages of active management 10 f) Disadvantages of active management 10 Evaluation of passive and active investing 11 Results 12 Conclusion 13 Reference and Bibliography 14 Executive Abstract Appropriate management strategies are important to portfolio management, as they not only safeguard the value of underlying assets, but also achieve as high returns as possible. Among dominant strategies, active investing and passive investing are typical ones managers utilise. Between these two competitive strategies, given some circumstances, passive management may perform better than active management, vice versa. Some may argue that a proper mix of both strategies can take advantage of the strengths of both strategies. This paper is aimed to explore those assumptions, circumstances and consequences of these two strategies and a detailed comparison will be provided after analysis of respective theoretical backgrounds and relevant data. Passive Investing a) Definition and application of passive investing: With passive investing strategy, portfolio manager invests only in accordance to pre-determined strategies that does not incorporate any forecast of the future. The very
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