Active fund
Active funds are classified according to different stock investment ideas, and they are a kind of funds with the goal of seeking to outperform the market. The performance of active funds mainly depends on the performance of fund managers, who actively choose stocks according to their investment direction, investment type and investment strategy. Simply put, they give the money to the fund manager, who chooses the stock investment according to his specialty and ability.
Passive fund
Passive fund is a kind of fund corresponding to active fund. Passive funds generally take a specific index as the target, choose all or part of the index as the investment object, track the performance of the index, and try to copy the performance of the index instead of actively seeking to surpass the market. So passive funds are also called index funds.
Active funds and passive funds have their own advantages and disadvantages, and they are compared with each other.
Advantages and characteristics of active funds
First of all, from the perspective of income, most investors should have heard the story of Buffett's ten-year bet, that is, Buffett once bet that the income of index fund investment for ten years would exceed the income of actively managed hedge fund portfolio. Buffett finally won the bet, beating 38% of actively managed funds with 125% of S&P 500 index returns, so many investors who prefer index funds use this as an example to illustrate that index funds have higher returns. However, domestic market data show that the returns of equity funds and partial-share hybrid funds in the past decade are higher than those of index funds, that is, the returns of active funds are higher than those of passive funds, because the domestic market is dominated by retail investors and invests as a whole.
Active funds have larger and more flexible income space, especially flexible allocation funds, which can increase stock positions to obtain excess returns in good times and reduce stock positions to reduce investment risks in bad times.
In terms of quantity and type, there are many choices of active funds, which are more suitable for asset allocation and can meet the all-round investment needs of investors. In particular, investors who have a certain level of professional judgment on the market or industry can selectively allocate some industry funds according to market trends, and for some high-growth and sustainable industries, they can also hold them for a long time to obtain long-term benefits in the future.
Advantages and characteristics of passive funds
Passive funds are less influenced by fund managers, with more stable returns and lower risk coefficient. Passive funds are less dependent on fund managers, and each fund manager has different abilities and levels. Passive funds can, to a certain extent, avoid subjective selection mistakes caused by ability differences and emotional influences. Index funds mainly pursue the market average, and their income is more stable.
Passive funds are sustainable, because the constituent stocks of index funds will be adjusted regularly, and unqualified targets will be eliminated and new targets that meet performance will be included, so they will continue to exist and will not die out.
Passive fund positions are more transparent, and the index compilation method is open and transparent. Investors can know the detailed positions of index funds, and active funds generally only publish the top ten positions. There is a time interval for regular announcement.
The cost of passive funds is lower, and the average management fee of passive index funds is the average management fee of active funds, which can save more costs in transactions.