Ensign Capital Management, Inc.
Timing is Everything
Active management is founded upon the belief that market events are not random and that discoverable relationships exist between different data and the performance of financial markets. Using computers, professional active managers have developed timing strategies that take advantage of these relationships. These strategies look for long-term trends in the market's fluctuations to detect periods of sustained up or down movements. During an up leg of the market, investments are put into more aggressive assets to maximize return. When markets appear to have hit a top, investments are moved into less aggressive assets such as money market funds until the next up market.
Active management involves buy and sell transactions in response to indicators typically generated by mathematical models. These models attempt to identify either the current trend of the market, or the possibility of a change in that trend. Studies of actual results of professional money managers using active management techniques reveal that the average active managerís results, like the average mutual fund, slightly lag market indexes. At the same time, there are a growing number of active managers who consistently outperform the market over a full market cycle - both bull and bear. When risk-adjusted return is used as the way to measure performance, even the average market timer outperforms the market by a notable margin (Wagner, Shellans and Paul, 1992; Hulbert, 1993; Chance 1998).
For further information see http://www.naaim.org/