Actively Managed Fund: A mutual fund or ETF where the portfolio manager makes security-selection and allocation decisions with the goal of outperforming a benchmark.

Actively Managed Fund

A mutual fund or ETF where the portfolio manager makes security-selection and allocation decisions with the goal of outperforming a benchmark.

Definition

In an actively managed fund, the portfolio manager uses research, analysis, and judgment to select securities they believe will outperform the benchmark index. The manager may overweight or underweight sectors, hold cash, and make tactical shifts based on their market outlook. Active management adds costs that must be overcome to deliver net-of-fee outperformance: the MER for an active Canadian equity fund in Series A typically runs 2.0-2.5%, compared to 0.1-0.3% for a passive equivalent. Academic evidence suggests most active managers underperform their benchmark net of fees over full market cycles, although some categories (certain alternative, small-cap, and fixed-income strategies) show more consistent active management value. Under CIRO KYP and suitability rules, registrants must be able to explain why an actively managed fund is appropriate for a specific client, including a clear articulation of why the higher cost and manager risk are justified given the client's objectives and alternatives available on the firm's shelf.

Source

NI 81-102; CSA Notice 81-336; CIRO IDPC KYP obligations

Where this shows up on the CIRE

Outcome 5.1
Outcome 3.4

Test yourself

Two real CIRE-bank questions on this exact outcome. Click to reveal the answer and the rule citation.

1
A client opens a margin account and immediately requests a leveraged position equal to three times her net liquid assets. The registrant processes the order because the client signed the margin agreement and insists she understands the risks. Which statement best reflects the registrant's obligation?
Outcome 3.4 · click for answer
A.The registrant has no further obligation once the client has signed the margin agreement and acknowledged the risks.
B.The registrant must still assess whether the leveraged strategy is suitable for the client's KYC profile; client acknowledgment of risk does not discharge the suitability obligation.Correct
C.The suitability obligation is suspended for margin accounts because clients self-certify their understanding.
D.The obligation is fully discharged if the registrant provides a written risk disclosure document at account opening.
Signing a margin agreement and acknowledging risks transfers some responsibility to the client but does not extinguish the registrant's suitability obligation under NI 31-103 and CIRO rules. The registrant must still assess whether the leveraged strategy is appropriate given the client's financial situation, risk tolerance, and investment objectives. Suitability analysis applies to each order or recommendation, not only at account opening.
2
Under UMIR, a registered trader at a CIRO marketplace participant enters a large buy order for a thinly traded security. The trader fragments the order into many small lots throughout the session to avoid triggering an uptick in the displayed quote. A colleague flags this as potentially problematic. Which UMIR concept is most relevant?
Outcome 5.1 · click for answer
A.Best execution, because the trader is failing to obtain the best available price.
B.Gatekeeper obligations, because the branch manager approved the order.
C.Manipulative and deceptive trading, because intentionally managing orders to affect the appearance of trading activity or price formation may constitute manipulation under UMIR.Correct
D.Short sale rules, because the order involves selling borrowed securities.
UMIR prohibits trading activity that creates a misleading appearance of trading activity or that manipulates the price of a security. Deliberately fragmenting orders to manage quote impact in a way designed to create a false impression of natural market activity can fall within UMIR's manipulation provisions. This is distinct from legitimate order management strategies because the intent is to avoid natural price discovery rather than to achieve best execution for a client.

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