Tackling Key Disadvantages of Active Portfolio Management with the Help of KPIs

The concept of active portfolio management has at times drawn censure from conservative analysts who have labeled the approach as risky and unsound owing to certain disadvantages that it has. Some of the most common arguments made against active portfolio management include the possibility of making bad investment choices, an increase in tax burden and the incurring of excessive associated transaction costs involved from frequent trading.

While some the arguments do have some merit, the whole process of active portfolio management can be optimized and made more responsible with the help of key performance indicators grouped together in a holistic scorecard. Fund managers should try to develop customized active portfolio management scorecards that are tailored to their investment requirements and the markets they are operating in. In addition while framing such a scorecard, one needs to lay emphasis on the fact that macroeconomic factors too are clubbed in to avoid wrong investment choices. Typically the scorecard can serve as an effective evaluation mechanism through which decisions which are deemed to carry a low probability of success are weeded out while the more sound proposal are kept on the table.