Understanding Fund Exposure to Active and Passive Investment Management

When deciding how to apportion their investment portfolios, investors have several allocation tools at their disposal.  These include, but are not limited to, mutual funds and exchange-traded funds (ETFs).  Such investment vehicles can provide much-needed diversification from idiosyncratic risk, and offer exposure to both active selection and passive indexing investment approaches. 

Actively-managed funds attempt to construct an allocation that outperforms its benchmark, while a passive index fund seeks to simply follow a specific portion of the market by tracking a benchmark.  A fund that is actively managed may provide outsize returns, but on average they typically fail to outperform the market, so investors should be thoughtful and deliberate about the decision to potentially pay more in fees for an active fund, rather than a passive index fund.

Read more on this subject here: https://money.com/mutual-funds-etf-index-funds/