Active Managed Funds vs Passively Managed Funds

• Passively Managed Funds (Index Funds):

• Is a collection of stocks.
• Like a S&P 500, which can buy.
• No fund manager trades stocks looking for opportunities.

• Active Managed Funds:

Active management: the use human element, a manager or a team of managers, to active manage the funds' portfolio.

     Example of Active Managed Funds:    

Lucas works for "Fidelity"

• Lucas fund.
• Lucas is a fund manager and he buys and sells stocks with a large pool of money. 
• Retail investors can buy an interest in the Lucas Fund
• Investor profits or losses are indirect proportion to how the Lucas fund performs.
• Lucas watches the economy global interest rates and he research stocks to maximize profits.
  
  
  
  
  3 specific advantages index funds have over actively managed funds, which they call Passive Portfolio Multipliers (PPM):
  1. Portfolio advantage: Index funds have a higher probability of outperforming actively managed funds when combined together in a portfolio.
  2. Time advantage: The probability of index fund portfolio outperformance increased when the time period was extended from 5 years to 15 years.
  3. Active manager diversification disadvantage: The probability of index fund portfolio outperformance increased when two or more actively managed funds were held in each asset class.
  
  
  Read more: http://www.businessinsider.com/index-funds-beat-actively-managed-funds-2013-6#ixzz2cQYrcBKW