ACTIVE VERSUS PASSIVE INVESTMENT

There are those who believe that in the long term you cannot beat the market (meaning the weighted average market performance). This theory is based on the proposition that the market always reflects the sum of knowledge at any point of time and therefore prices are always correct and will only change through some new event which is unpredictable.

Although many funds have consistently beaten the market, this does not necessarily disprove the theory (in the very long run). If you are inclined to believe this theory, then it may be sensible to invest in a fund which effectively replicates the particular market into which you wish to invest (a form of passive investment)- commonly called Index Funds.

On the other hand, it is perhaps reasonable to believe that some fund managers are better than others and hence better than the average (the market) most of the time. There are many instances of individual fund managers who have consistently outperformed both their peers and the market. Whether or not they can continue to defy gravity is an interesting question. Identifying these people is not always easy - you need to follow the game closely by reading fund literature, trade magazines and the financial press.

These high performers are in great demand and likely to be head- hunted by rival fund management companies. Once invested into a good performing fund with an identified individual fund manager, keep watch in case he moves on! If you are inclined to believe that there are those who have a greater insight into investment matters than others then the above strategy could be followed (active investment).

Caution is recommended however - the markets are littered with ruined reputations!

Closed v Open ended