Modules for Investors
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What is the Role of Portfolio Manager?
Who said you need to invest all by yourself? Share Market is a big universe, with many investment products. And while investment knowledge pays off, you can’t possibly learn & foresee all profitable opportunities. This is why you can use a portfolio manager.
Portfolio managers are professionals who will manage your investment portfolio. They spend a lot of time researching current events & financial markets and they meet regularly with analysts to discuss the implications of market developments. Analysts from investment banks present investment ideas to portfolio managers, then they need to go through the information and make decisions about what securities to buy and sell to maximize profits.
What Does a Portfolio Manager Do?
So exactly how do portfolio managers go about achieving their clients’ financial goals? In most cases, portfolio managers conduct the following steps:
1. Determine the Client’s Objective
People have different desires from the share market. Some individuals might want to spend small amounts of money for a long period of time. Whereas, institutional investors will have deeper pockets with longer investment horizons. Portfolio managers communicate with their client to determine their respective desired return and risk appetite or tolerance.
2. Choose the Optimal Assets
Managers then determine the most suitable asset classes such as equities, bonds, real estate, private equity, etc. based on the client’s investment goals.
3. Conduct Asset Allocation
Portfolios require periodic rebalancing, as asset weights may deviate significantly from the original allocations over the investment horizon due to unexpected returns from various assets. Portfolio managers assign asset class at the beginning of investment periods so that the portfolio’s risk and return trade-off is compatible with the client’s desire.
4. Manage Risk
By selecting weights for each asset class, portfolio managers have control over the amount of security selection risk. The only way a portfolio manager can avoid security selection risk is to hold a market index directly; this ensures that the manager’s asset class returns are exactly the same as that of the asset class benchmark.
5. Measure Performance
The performance of portfolios can be measured using the Capital Asset Pricing Model (CAPM) model. It is widely used throughout finance for pricing risky securities and generating expected returns for assets given the risk of those assets and cost of capital.
What to expect from the portfolio managers?
Portfolio managers have important decisions to make and various reports to analyze on a daily basis. There are a number of skills necessary for success in the portfolio management sector, but here are four of the most important:
Innovative: All portfolio managers look at the index and news. They do outside-the-box research and know where to find information on potential investments that others do not. There is a tremendous potential payoff for investors who can find a good investment that others failed to see.
Critical Thinker: Portfolio managers must be able to think through strengths, weaknesses, opportunities, and threats for every potential investment decision. Analyzing reports from financial analysts and other research requires portfolio managers to have strong critical thinking skills.
Decisive: Being a portfolio manager means making many investment decisions. There will never be any certainty in this industry; therefore, it is important that portfolio managers are good at evaluating options and making confident decisions.
Experience: Becoming a portfolio manager requires first working as a financial analyst and gaining important investment experience. The research analysts inform the decisions portfolio managers make. Gaining experience as an analyst will help individuals better understand the life of a portfolio manager and see if it is a potential good fit.
Now that you know about the role of a portfolio manager, let’s learn 10 things to keep in mind when making your equity portfolio. To discover the answer, head to the next chapter.
A quick recap
- Portfolio managers are professionals who will manage your investment portfolio.
- Portfolio managers are good at evaluating options and making confident decisions.
- They spend a lot of time researching current events & financial markets and they meet regularly with analysts to discuss the implications of market developments.
- Portfolio managers identify the client’s objectives and choose the optimal assets for their portfolio.