Active vs. Passive Portfolio Management: A Comparative Study

Abstract

This study conducts a comprehensive comparative analysis of active and passive portfolio management strategies using a mixed-methods approach that integrates quantitative measures such as Jensen’s alpha, Sharpe ratios, tracking error, and information ratios with qualitative insights derived from fund manager reports and investor narratives. The results indicate that passive funds consistently outperform active funds in terms of cost efficiency, risk-adjusted performance, and long-term stability, largely due to lower expense ratios and minimal tracking errors. However, active management retains relevance under specific conditions: in volatile or innovation-driven markets, in emerging economies with higher inefficiencies, and when integrating investor-specific objectives such as ESG considerations. While active strategies often suffer from higher costs and weaker persistence in alpha generation, their adaptability provides value during market turbulence and structural change. Overall, the findings suggest that passive management should serve as the portfolio core, but selective integration of active strategies can enhance resilience and flexibility. The study concludes that active and passive management are not mutually exclusive but should be viewed as complementary within modern investment frameworks.