What is a portfolio manager?


The title of portfolio manager is generally a catch-all term for a person or company responsible for investing the client …

The title of portfolio manager is generally a catch-all term for a person or company responsible for investing client assets. However, a more precise definition depends on the type of business.

Some financial advisers are portfolio managers. But portfolio managers can also work in mutual funds, hedge funds, exchange-traded funds, or other types of investment funds.

The functions of these two types of portfolio managers overlap, but there are also distinct differences due to the types of clients they serve.

Here’s what investors need to know about portfolio managers.

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What is a portfolio manager?

Depending on the size and type of business, a portfolio manager typically implements investment strategies and manages day-to-day portfolio operations. Sometimes these roles are divided based on the size of the asset.

Portfolio managers who work in funds have different goals and objectives than portfolio managers who invest the assets of an individual or a family.

The portfolio managers of funds typically specialize in a certain style or sector of the market, such as US large-cap stocks or small-cap technology, and use a series of stocks to grow the portfolio, says Matt Andrulot, executive director of the investment strategy at Verdence Capital Advisors. .

An active fund manager often works with a team of analysts to help research and come up with investment ideas, says Terry Sawchuk, Founder and Chairman of Sawchuk Wealth. The portfolio manager narrows down these ideas to investments that best match the fund’s objectives.

The portfolio managers of passive index funds design the investment strategy and objective and work with an index provider who selects the index constituents. Index funds can be broad, such as funds that track the S&P 500, or they can be defined more narrowly, to capture a niche sector or theme.

When it comes to financial advisors managing portfolios, their goal is to manage a client’s assets based on the client’s needs. For example, Dick Pfister, CEO of AlphaCore Wealth Advisory, says his company has created prudent, balanced and growth portfolio models for clients based on their risk tolerance and needs. “We’re basically on a fact-finding mission to determine what the client’s goals and objectives are for their household in their portfolio,” he says.

This assignment may include researching stocks, fixed income securities, and alternative investments in an attempt to meet performance targets. His company’s investment committee meets at least once a quarter and sometimes more often depending on market conditions. During these meetings, the committee reviews macroeconomic conditions, such as market cycles in both equity and fixed income markets, and considers making changes to portfolio positions. Like most portfolio managers, he wants to avoid rushed moves.

Andrulot says his company takes a broad approach from an asset allocation perspective and allocates capital among asset classes and investment managers to provide a diversified portfolio to its clients. For clients with long-term goals, portfolio managers make tactical decisions when setting asset allocations, over 10 years or more. However, he says, they will tactically trade these portfolios on an 18-24 month basis to reallocate them as necessary to meet long-term goals.

[SEE: 6 Pros and Cons of Choosing a Fee-Only Financial Advisor.]

Daily activities of a portfolio manager

A large part of a portfolio manager’s day-to-day activities include reviewing data and synthesizing information, says Michael Wagner, co-founder of Omnia Family Wealth, which runs a multifamily office and manages portfolios for families. very wealthy. This data includes various economic reports, the results of central bank meetings and macroeconomic events.

Wagner seeks data that can help him build strong portfolios that will withstand different market cycles. He’s looking to see if there is any data changing his view of the investing world. If the data changes his perspective, it may require a change in asset allocation. Before making any changes, however, he takes into consideration the potential tax implications.

Most of the portfolio manager’s job involves behind-the-scenes tasks like these, not client-facing roles, the sources say.

The qualifications of a portfolio manager

There are no specific degrees or certifications required to become a portfolio manager, but a finance or math degree will definitely help. Many portfolio managers, but not all, have a chartered financial analyst, chartered alternative investment analyst, chartered financial planner, or other certification.

[Read: CFP Exam 101: Everything You Need to Know to Pass the CFP Test.]

The ability to conduct quantitative research and analysis is also a key skill. “You absolutely need to be very comfortable with Excel,” says Wagner, referring to spreadsheet software. This is to help calculate the numbers.

There are also soft skills that help portfolio managers succeed, especially those who consult with clients. Wagner says portfolio managers should be able to clearly communicate fairly complex ideas in a way that others inside or outside the field can understand. “You have to be able to take what can be a very complicated question and talk about it clearly and clearly with people of various backgrounds and levels of sophistication,” he says.

Sawchuk says another important skill is discipline and a stable temper. “The most successful fund managers are the ones who have a plan and stick to it,” he says. “The market will try to pull you away from the plan, and all kinds of things can happen. A logical mind may want to walk away. But if you want to build systems, you have to stick to the system, and it’s not easy to do that as humans.

Pfister says having an open mind and humility helps too. While it is important to stick to a plan, it is also important not to “get married to an idea” that could potentially hurt portfolio performance. Knowing the difference between overcoming market volatility and realizing that the market or economic circumstances have changed comes from experience.

“You have to be humble enough to realize and recognize when you are wrong and be able to change your mind,” he says.

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What is a portfolio manager? originally appeared on usnews.com

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