# A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
Active Management

What is Active Management?

If a fund is actively managed, it means a fund’s manager deliberately chooses specific investments for the fund’s portfolio that he or she believes will perform better or be less risky than other investments.

In reality, most active managers fail to beat their benchmarks. One reason for this is that there’s no guarantee that active managers will be able to pick investments that will outperform the benchmark or peer group. The other reason is that active management is costly. For one, active funds tend to have higher management fees in order to pay the fund’s managers and research team. Also, active management is often associated with higher portfolio turnover, which causes more trading and associated costs.  

When a fund is passively managed, on the other hand, it aims to mirror the benchmark’s return. Index funds tend to have lower costs associated with running the fund and lower turnover as well, so they can deliver a return that is very close to benchmark’s. You won’t crush the market, but most active-management funds don’t anyways.

That said, there are many actively managed funds in which Morningstar analysts have conviction. We assign Morningstar Medalist ratings to those funds, both active and passive, that we expect to outperform their category peers while accounting for risk over the course of a full market cycle.

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