Passive management
What are they?
It is an investment management approach that seeks to replicate the performance of a specific benchmark index rather than trying to outperform it. Passive management funds, such as index funds, invest in a portfolio of assets that mirrors the composition of the benchmark index, aiming to achieve a return similar to that of the index without actively attempting to exceed its performance.
Passive management is based on the premise that markets are efficient in the long term, meaning that instead of selecting assets to beat the market, the fund simply aims to replicate its behavior. This approach allows investors to benefit from the overall market performance without incurring the costs of active management.
Key aspects to consider
Key characteristics of passive management include:
- Low management costs: Since it does not require continuous analysis and decisions on buying and selling, passive management funds have significantly lower fees than active funds.
- Automatic diversification: By replicating an index, passive funds provide broad asset diversification, helping to reduce the overall risk of the portfolio.
- Benchmark performance objective: Rather than attempting to beat the index, passive funds aim to replicate its performance as closely as possible, offering a simpler and more efficient approach.
This type of management is suitable for long-term investors who prefer a low-cost approach and are not interested in trying to anticipate market movements. Passive management provides an accessible and effective way to invest in a wide range of assets without the complexity of active management.