Which term describes the strategy used when a fund manager is trying to outperform a benchmark index?

The term that accurately describes the strategy used by a fund manager who aims to outperform a benchmark index is active management. This approach involves making specific investment decisions and taking calculated risks based on research, analysis, and forecasts to generate returns greater than those of the index. Active management contrasts with passive management, which focuses on replicating the performance of a specific index by maintaining a portfolio that mirrors the index's composition without attempting to outperform it.

Active management strategies may encompass various techniques, such as stock selection, market timing, and sector allocation, enabling managers to capitalize on perceived market inefficiencies. The objective is to achieve returns that exceed the benchmark while managing the associated risks. This approach can lead to higher transaction costs and requires a more hands-on approach compared to passive strategies, which primarily aim for long-term market exposure without frequent trading.