Understand the key differences in management style and costs between active and passive fund investing. Find out more with Barclays Stockbrokers.
Lower cost investing

Lower cost investing

One of the key things you’ll want to think about when you’re investing in funds is whether to go for ‘actively managed’ funds or ‘passively managed’ funds.

Active versus 


Both types of fund are run by a professional fund manager – the key difference is in how much they are involved. In an actively managed fund, the fund manager makes choices about how and where the fund invests, aiming to beat a performance benchmark or ‘market’.

Passively managed funds, often called ‘tracker funds’ simply aim to track a benchmark or an index, such as the FTSE100, rather than trying to outperform this level by making specific investment choices.

Why choose passive management?

Management fees for passive funds are generally lower, even when their performance is similar to an actively managed fund. This is because they do not have the same costs for the fund manager or team of analysts to carry out investment analysis.

Your investment will align with the market (i.e.FTSE100) which you couldn’t do yourself without individually purchasing each company within the market.

The downside is the fund can’t make use of opportunities that may arise in the market. You’ll need to be happy with the returns that tracking the index delivers.

Why choose active management?

In an actively managed fund, the fund manager makes decisions based on market trends, the state of the economy and company performance as well as political and other current affairs factors. They aim to beat the performance of the benchmark for the fund by changing when and where they invest.

The most obvious downside apart from higher management fees is that the fund manager may get it wrong. But if you pick the right fund, you could get back more than by investing in a tracker fund. It’s also worth remembering that some sectors are better suited to active rather than passive management, for example, property. Active managers may also come into their own in more specialised areas such as technology, healthcare or emerging markets.

You can read more about the pros and cons of both approaches in our Smart Investor article on choosing between active and passive funds and get the lowdown on the active vs. passive debate in this video from Will Hobbs, Head of Equity Strategy.

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  • The value of your investments can fall as well as rise and you may get back less than you initially invested
  • Investing is not for everyone, if you are unsure please seek independent advice.
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