Investing

Portfolio Manager

What is a Portfolio Manager?

Portfolio managers are individuals or groups responsible for investing in mutual, exchange-traded or closed-end fund assets, implementing their investment strategies, and managing day-to-day portfolio transactions. A portfolio manager is one of the most important factors to consider when considering fund investments. Portfolio management can be active or passive, and the historical track record shows that only a few active managers consistently outperform the market.

key takeaways

  • A portfolio manager is a person or group of people responsible for investing in fund assets, implementing the fund’s investment strategy, and managing day-to-day portfolio management.
  • Portfolio managers can play an active or passive management role.
  • The ability to present ideas and apply excellent research skills are just two factors that influence the success of a portfolio manager.

Understand the role of a portfolio manager

Portfolio managers have a lot of influence over a fund, whether that fund is a closed-end or open-end mutual fund, a hedge fund, a venture capital fund, or an exchange-traded fund. The manager of the fund’s portfolio will directly affect the overall return of the fund. As such, a portfolio manager is usually an experienced investor, broker or trader with a strong financial management background and a track record of continued success.

Regardless of background, portfolio managers are active or passive managers. If managers take a passive approach, their investment strategies reflect specific market indices. Using this market index as a benchmark is important because investors should expect to see similar returns over the long term.

Instead, managers can take an aggressive investing approach, meaning they try to consistently outperform average market returns. In this case, the portfolio managers themselves are very important because their investment style directly contributes to the fund’s returns. Potential investors should review the active fund’s marketing materials for more information on the investment approach.

Traits of a Good Portfolio Manager

Regardless of the investment method employed, all portfolio managers need to possess very specific qualities in order to be successful. The first is the idea. If a portfolio manager is active, the ability to have raw investment insight is critical. With over 7,000 active funds to choose from, active investors need to stay sane about where their investments are going.If managers take a reactive approach, raw insights come in the form of market indices that they decide to reflect. Passive managers must make informed choices about indices.

Also, the way a portfolio manager conducts research is very important. Active managers take lists of thousands of companies and pair them into lists of hundreds of companies. Shortlists are then provided to fund analysts to analyze the fundamentals of potential investments, after which portfolio managers evaluate companies and make investment decisions. Passive managers also do their research by looking at various market indices and choosing the one that works best for the fund.

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