Passive management is an investing style whereby investment portfolios try and generate returns that mirror the returns of the underlying constituents of the portfolios. Portfolios may be built using exchange traded funds (ETFs) which track the performance of a stock index or other underlying security. For this reason, index investing is a type of passive strategy.
The opposite is active management. This is where a professional fund manager manages the investment fund and its trading activities completely, and then attempts to generate better returns than the fund’s benchmark.
A key tenet of passive management is that few active managers justify their extra costs by generating additional market-beating returns, and even fewer can do this consistently.
