I'm currently trying to understand what officially constitutes an active or passive fund and where the border lies.
Unfortunately I didn't find any officially looking (=legally binding) definition but only things like:
etc.
From what I understand, I would define
Active Fund: Equities selected actively by a fund manager, most likely by qualitative criteria and on a case by case basis (=Stockpicking and looking at individual entries)
Passive Fund: Defining an index by quantitative rules and then just trying to replicate that index, disregarding any opinions on any individual entry
So my first question: Is this correct or am I missing something?
My second question would be: Since modifying existing indexes (like SP 500 equal weighted index and creating own indexes (even proprietary) is allowed as far as I understand, could a fund manager pile on as much quantitative selection criteria as they want (like industry, P/E ratio etc.) to a point where it is essentially stock picking but still call it a "passive index fund" because it essentially is? At what point would that constitute as deceiving / false advertising?
Submitted December 07, 2017 at 07:26AM by DragonTEC http://ift.tt/2AXoHI6
