- Such strategies assume that market expectations are correct.
- Portfolio is structured in a way to closely track the benchmark index.
- Portfolio manager deploying such strategies accept average risk and return level.
- Primarily rely on manager's forecasting abilities.
- Returns of the portfolio must increase if manager has superior forecasting skills.
Types of Passive Management Strategies
- Pure bond indexing/Full replications approach
- Enhanced indexing by matching primary risk factor
- Enhanced indexing by small factor mismatches
Types of Active Management Strategies
- Active management by larger risk factor mismatches
- Full blown active management