Pensions - Active or Passive?

[littlegreenfairy]

Would someone be kind enough to tell me what the difference is and the pros/cons of each.

I have no idea what they are and don't understand the info I've pulled up.

Thanks so much

[Pobolycwm]

I think active refers to a pension which is still being paid into

Passive, no longer being paid into but a fund waiting for a maturity date / retirement date to start paying out eg a pension with a previous employer

[JohnP68]

it's different styles of investment management

see http://www.russell.com/us/education_center/plan/ac... for quite a good summary

[lauda]

Active management seems to be getting a little less popular for investments in developed Western markets (US, Euro etc) since these are efficient markets and therefore bettering the index is difficult. Also, actively managed portfolios tend to provide quite erratic returns in volatile market conditions.

Some will get it right and manage to outperform a falling market but the majority seem to struggle more than passive funds in these conditions.

Developing markets (South America, India, China, etc) are less efficient and there is greater potential for investment managers to exploit opportunities in undervalued companies/sectors. Active management generally makes more sense in these markets.

You will obviously pay higher fees for an actively managed fund but the theory is you will earn a greater return. This may not be the case in practice though.

In my experience (I work with occupational pension funds) most schemes which have followed an active management policy have failed to make significantly greater returns that those who have gone passive and in some cases have done worse and paid a lot more for it.

I believe that some research has been done using a monkey to select an active portfolio and the results compared to those of professional investment managers. The monkey achieved better returns in the majority of cases. Read into that what you will...