Why active management still matters, especially when markets get unpredictable

SPOILER: There are basically two camps in investing: active and passive. Active management is used in many mutual funds, and more recently, active ETFs where professional managers make judgment calls on your behalf. Passive management is more common with index funds, which track the market instead of trying to beat it. When markets become unpredictable, active management can give investors room to act, not just react.  

So what does active management actually mean? 

Active management means you have a team of portfolio managers and research analysts constantly working to maximize your return. These professionals dig into companies, study market trends, and spot opportunities and risks that an index doesn’t adjust for in real time. They meet with executives, analyze financial statements and business models, and evaluate leadership and strategy. It's a hands-on approach that uses judgment and experience, not just algorithms.  

Source: Fidelity Investments Canada ULC.

What’s the real value of active management? 

At its core, active management means there are actual people behind the wheel, researching, picking and adjusting the investments instead of just following an index. They meet with company execs, dig through financials, and decide what deserves a spot in the portfolio.  

These teams analyze business models, meet with leadership, and keep tabs on results over time, which helps them decide what to hold, add or avoid. 

Source: Fidelity Investments Canada ULC. 

They use broad market indexes as their benchmarks for performance but they’re proactively looking for ways to outperform the index If they can beat the benchmark, your investments may have the potential for stronger returns, which could lead to an increase in your investment value. 

Why does active management matter when markets get rough? 

Think of fixing your own car. You can handle small stuff yourself, but when the engine light’s flashing, you want a mechanic. It's the same with investing, active managers can step in when markets get shaky, instead of watching the ride from the passenger seat. Index funds on the other hand move exactly with the market, no steering, wheels or brakes. 

When there's no active management, just an index doing what the market does, your fund's performance is influenced by the market's performance. That's fine when things are good, but when the market drops, it drops too. That's where active management can help: it gives professionals the ability to deviate from the crowd and look for downside protection.   

What “downside protection” actually looks like? 

Downside protection basically means reducing risk before or during a downturn. Index funds hold everything in the index; good, bad or ugly. Active managers, on the other hand, can be selective about what stays in and what gets cut. When things start looking shaky, managers can shift towards safer holdings, cut exposure to overheated areas, or raise cash for stability. They may focus on stronger names and potentially avoid those that could negatively impact performance. As conditions change, tilt towards lower risk securities, step away from overheated areas, or temporarily raise cash. As markets fall, they can move into bonds or cash, basically hitting the brakes while everyone else keeps rolling downhill. You can see downside protection in action by comparing a fund’s performance to its benchmarks during a downturn. The manager's strategy aims to limit losses and position for potential recovery. 

So how does that compare to passive index funds?  

Source: Fidelity Investments Canada ULC. 

For illustrative purposes only. 

How we put active management to work? 

https://reddit.com/link/1q6hmrd/video/rr4cd08bzxbg1/player

At Fidelity, a global network of research analysts and managers is constantly scanning the market for opportunities and risks that collaboration across sectors and regions helps them act on insight faster and make smarter decisions when conditions shift. 

TL;DR Index investing plays an important role in portfolios, but it's not the whole story. Active management adds human insight, research depth, and the flexibility to act when markets change. For many investors, using both approaches provide structure and flexibility which can help them stay invested with confidence when markets get unpredictable. Fidelity Active ETFs combine the structure of an ETF with the insight of active portfolio managers, which aims to giving you a smart, balanced way to invest. 
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