Why Hedge Funds, Pension Funds, Real Estate and Equity Funds Prefers Active Investment?
Since the dawn of the International Stock Markets, investors have been trying to generate returns by investing in individual stocks, commodities or in Government Bonds. In most cases, this is an Active Asset Management that uses the active form of financial investments.
The Active Investment of money is the fundamental idea that one is able to achieve a higher profit than the average market earnings through active responses. A prerequisite, however, is a certain competitive edge compared to the overall market.
The investor must have this knowledge sooner or to a greater extent at their disposal than the market itself. The boundaries for the so-called insider trading, which is generally prohibited are not very clear in this area.
The Aims of Active Investments
The general aim of active investment is to "beat the market" in the long term. This means that you want to achieve the highest possible profit, which is not only above the inflation rate, but also above the expected profit.
All actively managed collective investment fund attract customers by conveying them that they are capable of getting best return on active investment. This is also a reason why individual stock, bond or real estate investment funds like to advertise with the personality of the fund manager and his successes.
Looking at the long term success of active investments from a scientific point of view, it quickly becomes clear that Active Fund Manager's term of office is generally too short to be actually used to demonstrate a statistically proven long-term success.
In reality, it is very common that an exceptionally successful fund manager invests mostly in a less successful real estate, bond or equity fund in his next term of office.
The Misconception of Active Investments
However, if the above problems apply to all active investments as financial investment, then why these active investments are so popular?
This is partly because most people in the German-speaking countries still prefer to invest their money in a savings account. They have learned, however, that with this type of investment, little or no interest rates are to be expected and they might even end up losing money in the long run despite historically low inflation rates.
Real Estate, Bond or Equity funds are the next step for financial investments with a higher return and a manageable level of risk. Even with this, it must be generally assumed that the money is invested safely by a high level of diversification and the yields are still higher than in a savings account or an overnight deposit account.