In an actively managed fund, a professional manager selects holdings based on their own analysis. When an individual investor analyzes securities and trades on their own judgment, that can also be considered a form of active investing.
How it works
Unlike index investing, which aims to track a market average, active investing aims to achieve returns above the market average (excess returns). Because of this, actively managed funds tend to carry higher ongoing management fees than index funds.
Benefits and points to keep in mind
Skillful security selection and analysis can potentially produce results above the market average, but there is no guarantee of outperformance, and results can also fall short of the market average. Compared with other management styles such as index investing, neither approach is inherently superior — each has its own characteristics and points to keep in mind.