Two Investment Strategies Used by Mutual Fund Managers in Managing Portfolios

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– There are two investment strategies used by mutual fund managers in managing portfolios. The first strategy is active investment strategy, in which the mutual fund manager attempts to achieve the highest possible return. 

Active mutual fund managers believe that their expertise in managing portfolios will result in better or higher performance compared to the index of stocks that serve as their benchmark. 

In managing their portfolios, active mutual fund managers will frequently buy and sell securities in the portfolio to achieve the highest possible return. 

In order to buy or sell the right securities in the portfolio, active mutual funds have a team of investment managers and research analysts who will analyze the economic and political trends (macro) and analyze the financial statements and business trends of companies (micro). 

In administering a mutual fund portfolio, active mutual fund managers will also be assisted by a Custodian Bank that is paid a certain fee that is charged to the mutual fund portfolio. 

In general, mutual funds in the market, unless their names indicate otherwise, are active mutual funds. 

From this explanation, it can be understood that active mutual funds involve many purchases and sales with the consequences of higher tax costs and exchange costs and higher brokerage fees (brokers). 

In addition, conventional mutual funds will also charge higher investment management fees and Custodian Bank fees (fees) to the investors within it (compared to similar costs for passive mutual funds or ETFs). 

In Indonesia, the costs that must be disclosed in the mutual fund prospectus are only investment management fees and Custodian Bank fees, and are the basis for comparing mutual fund costs. 

Other transaction costs do not have to be disclosed and must be seen for themselves in the mutual fund's annual audit report. 

In the United States, mutual fund costs in a year are known as the expense ratio, which is the ratio of all mutual fund costs to mutual fund assets. The expense ratio is not fixed and can change every year. 

The second investment strategy is the passive investment strategy, in which the mutual fund manager does not seek to find the highest possible investment return but "only" a return equal to the index (stock prices) that serves as the reference for the mutual fund. 

Passive investment managers believe that the prices of securities in the capital market already reflect all available information, both public and private, and that it is difficult to outperform the market. 

Passive mutual funds use a simple investment strategy by investing in securities that are representative of the entire market or a particular market sector. 

Passive mutual funds are also known as index funds because they follow the performance of a specific index. 

Passive mutual funds have lower management fees and management costs because they do not require research analysts and do not need to buy and sell securities as frequently as active mutual funds. 

Passive mutual funds are also known as exchange-traded funds (ETFs) because they are traded on a stock exchange like a stock. 

In the United States, ETFs have become increasingly popular in recent years because they have lower costs and higher tax efficiency than traditional mutual funds.

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