Which factor does NOT limit the value of active portfolio management for small governments?

Active portfolio management involves making investment decisions and trading securities with the goal of outperforming a benchmark index. For small governments, several factors can limit the effectiveness of active portfolio management.

The correct choice identifies that ignoring changes in the markets does not limit the value of active management for small governments. In fact, active portfolio management is designed specifically to take advantage of market changes and inefficiencies. Active managers constantly analyze market conditions, trends, and economic indicators to make informed decisions that can adapt to shifts in the financial landscape. This adaptability is a fundamental benefit of active management, allowing for strategic reallocations or tactical moves based on market dynamics.

In contrast, time consumption, increased transaction costs, and the need for greater investment management skills are significant considerations for small governments. These entities often operate with limited resources, and dedicating time and money towards active management strategies can detract from more efficient management practices, such as passive investing or core-satellite strategies. Thus, while active management can provide opportunities for enhanced returns, it also necessitates a level of commitment and sophistication that may not be feasible for all small government entities.