tjh290633 wrote:I think that you guys are missing the point as far as managed funds are concerned. They do not have to invest in every share in their universe, nor do they have to follow market weighting.
No, I am not missing the point. If an actively managed fund did invest in every share by cap weight they would not be an actively managed fund
If you take the shares in the FTSE350, for example, over the course of the year some shares will do better and some worse than the index itself. It only requires active fund managers to pick more of the better ones, and to weight their holdings differently, for them to outperform. They tend not to do this, of course, because of their sheep-like behaviour. There is no statistical reason for it, just their behaviour.
TJH
Unfortunately shares do not come with "better one" labels, but this is a good description of what every active fund manager is trying to do - overweight the shares they think will give better than market returns, underweight or exclude entirely the shares they think will underperform. In addition they may well have their particular favoured strategies, such as growth, value, momentum, income etc. and may exclude certain shares that don't fit their particular strategy, world view, or whatever, but no fund manager will want to overweight a share that they think will underperform the market. No rational fund manager anyway. If some managers exclude or underweight a share, then others must include/overweight. Those overweighting will be doing so because they believe the share will outperform.