Which type of investors might focus more on relative risk?

Active fund managers focus more on relative risk because their primary objective is to generate higher returns than a benchmark index, which is often represented by a specific market or sector index. To achieve this goal, active fund managers frequently make investment decisions based on a thorough analysis of risk relative to that benchmark. They assess the risk profile of their portfolios in comparison to the benchmark to ensure they are taking on appropriate levels of risk for the expected return.

This focus on relative risk helps them to adjust their strategies dynamically based on market conditions, sector performance, and various other metrics that impact their fund relative to the benchmark. By doing this, they aim to outperform the index, which requires a nuanced understanding of both absolute and relative risks involved in their investment choices.

Other investors, such as conservative long-term investors, value investors, and yield-focused investors, may prioritize absolute returns, dividend income, and changes in the intrinsic value of their holdings, rather than consistently measuring their performance relative to a benchmark, which is the hallmark of an active fund manager's approach.