18 – L1 17 Active Vs Passive V2

Let’s learn about active fund management versus passive fund management. When the goal of a fund is to outperform an index, it’s called an actively managed fund. For example the Fidelity Contrafund targets large cap growth stocks and seeks to outperform the S and P 500 index. When the goal is to match the performance of an index, it’s called a passively managed fund. A passive fund usually chooses an index as a benchmark that it tries to track. So they’re often called index funds. The fund managers do this by buying the same stocks that are listed by the index and in the same proportion as the index. Note that an index fund is not an index. It’s a fund that attempts to match the performance of an index. For example: The Vanguard 500 index Investor Fund is a fund that allocates investor money towards a portfolio that tries to match the S and P 500 index.

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