Search Results for « passive investment strategy »

Recent (2018) evidence identifies the increased need for active managers to facilitate the exploitation of investment opportunities found in inefficient markets. Typically, active portfolios are subject to tracking error (TE) constraints. The risk-return relationship of such constrained portfolios is described by an ellipse in mean-variance space, known as the constant TE frontier. Although previous work assessed the performance of active portfolio strategies on the efficient frontier, this article uses several performance indicators to evaluate the outperformance of six active portfolio strategies over the benchmark – subject to various TE constraints – on the constant TE frontier.

The U.S. stock market, whose performance reflects the overall economic health of the nation, is significantly influenced by trade policies and geopolitical factors, prompting investors to optimize their portfolio further. This paper selected 5 representative stocks in different industries from January 1, 2015, to December 31, 2024. By establishing the maximum Sharpe ratio, the investment portfolio is constructed. This paper aims to identify the investment portfolio with the highest Sharpe ratio and compare it against to see if the return exceeds 1/N portfolio method and passive investment (S&P 500 ETF index). A comparative analysis of these three methods demonstrates that the Maximum Sharpe ratio approach, yielding a 3.53% monthly return, outperforms both the 1/N portfolio method (0.83% monthly return) and a passive investment in the S&P 500 ETF (0.59% monthly return). This result remains significant after the robustness check, which offers new insight for investors, indicating that active investment methods can achieve better performance during certain periods in the U.S stock market.