Methods of Managing Funds

​The investment funds industry has evolved until it has been managed by professional managers that have special skills in the selection of appropriate investment tools which are expected to have a unique performance. In this industry, there are two methods to manage the funds. One is known as the “Passive Management” method while the other is the “Active or Positive Management” method. You can differentiate between the two methods as the following:

  1. “Passive Management” Method: The invested finances in the fund are distributed on a large number of stocks of one sector or it could expand to include the stocks of all the market’s sectors according to the index of that sector or the index of the whole market like investing in the stock of the industry index for example. This means that the manager of the fund invested in all the industry stocks so that the rates of the stocks in the portfolio are similar to the ratio of stocks in the index. Index funds are considered examples of the passive management funds’ strategies.  In it, the fund’s manager doesn’t try to rebalance the fund to stimulate its performance to exceed the index’s performance. For that, this method of management in general is characterized with lower costs of management fees which are cut off by the manager in regard to his work.
  2. “Active or Positive Management” Method: It is based on including the manager’s skills to positively affect the fund’s performance in gaining returns that are higher than the ones achieved by investing in the market indexes. Accordingly, managers always change their investment methods inside the fund. Therefore, it is a necessity to restructure the stocks or the sectors or changing the proportions of property in it according to their readings of the future of the investment climate in the fund’s market. This explains the relatively increase of the management fees in the funds that follow this method.