Which of the following refers to an investment strategy where the manager aims to earn excess returns?

Which of the following refers to an investment strategy where the manager aims to earn excess returns?

• A. Active portfolio management
• B. Passive portfolio management
• C. Buy and hold strategy
• D. Market timing

Answer: (A)

Active portfolio management refers to an investment strategy in which the portfolio manager takes a hands-on approach to buying and selling securities in an effort to outperform a benchmark index. The manager actively analyzes various market conditions, economic data, and individual security performance to identify opportunities for excess returns. This approach contrasts with passive portfolio management, where the aim is to replicate the performance of a benchmark index without attempting to outperform it. In active management, the focus is on making strategic investment decisions based on research and analysis, rather than simply holding a set of securities for an extended period or following a predetermined index. This method seeks to leverage market inefficiencies and capitalize on short-term market movements to achieve higher returns than what could be expected from passive investing strategies. The other options provided, such as passive portfolio management, buy and hold strategies, and market timing, do not primarily focus on generating excess returns through active decision-making. Passive management seeks to mirror market performance without attempting to beat it; the buy and hold strategy involves maintaining investments over long periods regardless of fluctuations; and market timing is concerned with forecasting the right moments to enter or exit investments rather than consistently generating excess returns across the portfolio.

Active portfolio management refers to an investment strategy in which the portfolio manager takes a hands-on approach to buying and selling securities in an effort to outperform a benchmark index. The manager actively analyzes various market conditions, economic data, and individual security performance to identify opportunities for excess returns. This approach contrasts with passive portfolio management, where the aim is to replicate the performance of a benchmark index without attempting to outperform it.

In active management, the focus is on making strategic investment decisions based on research and analysis, rather than simply holding a set of securities for an extended period or following a predetermined index. This method seeks to leverage market inefficiencies and capitalize on short-term market movements to achieve higher returns than what could be expected from passive investing strategies.

The other options provided, such as passive portfolio management, buy and hold strategies, and market timing, do not primarily focus on generating excess returns through active decision-making. Passive management seeks to mirror market performance without attempting to beat it; the buy and hold strategy involves maintaining investments over long periods regardless of fluctuations; and market timing is concerned with forecasting the right moments to enter or exit investments rather than consistently generating excess returns across the portfolio.