[Financial Quantification] How to judge whether a fund is an active fund or a passive fund?

1 meaning

Active funds refer to funds whose investment decisions are made by the fund manager or management team based on subjective factors such as market conditions and individual stock research. The asset allocation and investment portfolio are adjusted by the fund manager through active stock selection and timing.

A passive fund refers to a fund that invests according to an index. Its asset allocation and investment portfolio are all assets invested in a simulated index, and active adjustments are not often made.

There are fundamental differences in the investment philosophy and methods adopted by the two types of funds, which are mainly reflected in the following aspects:

1. Investment strategy: Active funds adopt active management strategies to quickly adjust positions to obtain higher returns, while passive funds adopt passive management strategies to simulate index investment and do not pursue excess returns.

2. Investment effect: Active funds have high costs in terms of management fees and transaction costs, and are prone to negative returns as the market fluctuates, while passive funds have lower management fees, and the investment effect tends to be stable. Investors can benefit from market fluctuations. Long-term access to index returns.

3. Stock selection ability: The active fund management team has certain investment research capabilities and is good at discovering potential stocks below the target price, while the value of passive funds lies in tracking the index and not actively selecting stocks.

2 Judgment method

To judge whether a fund is an active fund or a passive fund, the following aspects can be used:

1. Look at the type of fund: stock and hybrid funds are often active funds, while index funds are passive funds. However, there are cases where both active and passive funds are part of the same fund type.

2. Look at the investment strategy: Active fund managers will make investment decisions based on market conditions and individual stock research, while passive funds only invest based on a certain index. Therefore, we can understand the investment strategy and decision-making process of fund managers from materials such as fund prospectuses and performance reports.

3. Look at the frequency of buying and selling: active funds tend to trade frequently, and their investment income is relatively stable, while passive funds have a relatively low trading frequency and pay more attention to long-term investment income.