Advanced Diploma of Financial Planning (ADFP) Practice Test

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Prepare for ADFP Test. Use flashcards and multiple choice questions, each with hints and explanations for better understanding. Start studying today!

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Practice this question and more.

Which investment vehicle is typically not actively managed?

Hedge funds
Mutual funds
Unit investment trusts
Exchange-traded funds

The correct answer is: Unit investment trusts

Unit investment trusts (UITs) are typically not actively managed because they follow a set investment strategy and maintain a fixed portfolio of securities for a specified period. Once the portfolio is established, no further buying or selling occurs within the trust, which differentiates them from actively managed funds that continuously change their holdings to exploit market conditions or enhance returns. This static management approach allows UITs to often have lower management fees compared to actively managed funds. In contrast, hedge funds and mutual funds typically utilize active management strategies, where fund managers make frequent adjustments to the investment portfolio. Exchange-traded funds (ETFs), while passive in many cases, can also be actively managed, depending on the specific strategy they employ, making them less predictable in terms of management style compared to UITs.