Is active portfolio management outperforming passive management in the business cycle?
This bachelor thesis aims to develop detailed insight, and performance evaluation of actively and passively managed equity funds in the US market. The primary objective indeed is to show evidence of which investment strategies are more beneficial. The key question is if the active funds do outperform passive funds in the business cycle.
Alex Ngu & Benjamin Mak, 2018
Bachelor Thesis, University of Applied Sciences and Arts Northwestern Switzerland
Betreuende Dozierende: Josef Marbacher, Josef Marbacher
Keywords: Portfolio Management, Active, Passive, Investment, Modern Portfolio Management, Comparison
The debate on active portfolio management against passive portfolio management has been around for several decades between financial investors. Previous studies have shown factors, which favours the active as well as the passive management. Nevertheless, the actively managed portfolios have experienced more supporters. The University of Applied Sciences and Arts Northwestern Switzerland has acknowledged the discussion and assigned to develop further studies in the field of active and passive funds.
The methods applied to gather all necessary information for this research were data collection from secondary data analysis, empirical researching and benchmarking. Later, the data were processed and examined according to the factors of modern portfolio theories. The evaluation of the research project leads to an analysis of simple and risk-adjusted measurement figures. The simple measures include stock prices, annual returns, standard deviation, whereas risk-adjusted measures are Sharpe Ratio, Beta measure, Treynor Ratio and Jensen’s Alpha measure.
This project confirms the asset allocation into active and passive funds as an essential factor of portfolio investment. In addition, the historical performance of active and passive funds are correlated with the benchmark performance. In the US fund market, evaluation has shown the continuous overperformance of passive portfolios. The majority of active funds creates no value for increased prices.
The outcome of this research is to recognize different behaviours of active and passive funds. The results from this research project also provide further insights into active and passive funds, whereas the significant findings evidences specific recommendations for investors during different business cycles. Based on the results of the project, the authors have developed recommendations for financial investors.
Studiengang: Business Administration International Management (Bachelor)
Fachbereich der Arbeit: Banking & Finance