Which management style reflects the belief that the market is efficient and focuses on long-term investments?

The belief that the market is efficient is central to the concept of passive portfolio management. This management style operates under the assumption that all available information is already reflected in asset prices, meaning that it is challenging to consistently achieve higher returns than the market average through active trading or stock selection.

Passive portfolio management focuses on long-term investments by constructing a portfolio that aims to replicate the performance of a specific market index. This approach minimizes trading costs and capitalizes on the overall market growth over time, rather than attempting to time the market or select individual stocks.

Investors adopting a passive strategy typically invest in broad-based index funds, which offer diversification and lower management fees compared to active funds. By remaining invested for the long term, passive management seeks to take advantage of compounding returns and the general upward trend of the market, which aligns well with the belief in market efficiency.

In contrast, active portfolio management seeks to outperform the market through frequent buying and selling, while market timing involves making investment decisions based on predictions of future market movements. Strategic asset allocation focuses on maintaining a balanced investment approach that can include both active and passive strategies but does not singularly embody the belief in market efficiency like passive management does.