The title of portfolio manager is generally a catchall term for a person or firm that’s responsible for investing client assets. A more precise definition, however, depends on the type of firm.
Some financial advisors are portfolio managers. But portfolio managers can also work at mutual funds, hedge funds, exchange-traded funds or other types of investment funds.
The duties of these two types of portfolio managers overlap, but there are also distinct differences because of the types of clients they serve.
Here is what investors need to know about portfolio managers.
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What Is a Portfolio Manager?
Depending on the size and type of firm, a portfolio manager typically implements investment strategies and manages daily portfolio trading. Sometimes, these roles are divvied up, depending on asset size.
Portfolio managers who work at funds have different goals and objectives than portfolio managers who invest the assets of an individual or family.
Fund portfolio managers generally specialize in a certain style or market sector, such as U.S. large-cap equity or small-cap technology, and use a series of securities to develop the portfolio, says Matt Andrulot, executive director of investment strategy at Verdence Capital Advisors.
An active fund manager often works with a team of analysts to help with research and come up with investment ideas, says Terry Sawchuk, founder and chairman of Sawchuk Wealth. The portfolio manager narrows those ideas down to the investments that are most consistent with the fund’s objectives.
Portfolio managers of index-based, passive funds design the investment strategy and objective and work with an index provider who selects the index constituents. Index funds can be broad-based, such as funds that follow the S&P 500, or they can be more narrowly defined, to capture a niche sector or theme.
When it comes financial advisors who manage portfolios, their objective is to manage a client’s assets based on the client’s needs. For example, Dick Pfister, CEO of AlphaCore Wealth Advisory, says his firm created conservative, balanced and growth portfolio models for clients depending on their risk tolerance and needs. “We are basically on a fact-finding mission to determine what the client’s goals and objectives are for their household in their portfolio,” he says.
That mission can include finding equities, fixed-income and alternative investments to attempt to meet return targets. His firm’s investment committee meets at least once per quarter and sometimes more often as market conditions warrant. 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 hasty movements.
Andrulot says his firm takes a broad approach from an asset-allocation perspective and spreads capital across asset classes and investment managers to provide a diverse portfolio for its clients. For clients with long-term objectives, portfolio managers make tactical decisions when building asset allocations, looking out 10 years or more. However, he says, they will tactically trade those portfolios on an 18- to 24-month basis to reallocate as necessary to meet long-term goals.
[SEE: 6 Pros and Cons of Choosing a Fee-Only Financial Advisor.]
A Portfolio Manager’s Daily Activities
Much of a portfolio manager’s day-to-day activities include reviewing data and synthesizing information, says Michael Wagner, co-founder of Omnia Family Wealth, who runs a multifamily office and manages portfolios for ultra-high-net-worth families. Those data include various economic reports, central-bank meeting outcomes and macroeconomic events.
Wagner looks for data that can help him build sturdy portfolios that will weather different market cycles. He watches to see whether certain data alter his view of the investing world. If the data change his view, that may require changing the asset allocation. Before he makes any changes, however, he takes potential tax implications into consideration.
Most of the portfolio manager’s job entails behind-the-scenes duties like these, not client-facing roles, the sources say.
A Portfolio Manager’s Qualifications
There aren’t any specific degrees or certifications required to become a portfolio manager, but a finance or mathematics degree will certainly help. Many portfolio managers, but not all, have a chartered financial analyst, chartered alternative investment analyst, certified financial planner or other certification.
[Read: CFP Exam 101: Everything You Need to Know to Pass the CFP Test.]
The ability to conduct quantitative analysis and research is also a key skill. “You definitely need to be very comfortable with Excel,” Wagner says, referring to the software program for spreadsheets. That’s to help with crunching numbers.
There are also some 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 need to be able to take what can be very complicated matter and talk about it plainly and clearly with people of various backgrounds and sophistication levels,” he says.
Sawchuk says another important skill is discipline and a steady temperament. “The most successful money managers are those that have a plan and stick to that plan,” he says. “The market will try to push you away from the plan, and all kinds of events 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 human beings.”
Pfister says having an open mind and humility also helps. While it’s important to stick to a plan, it’s also important to not get “married to an idea” that may eventually harm portfolio performance. Knowing the difference between riding out market volatility and realizing market or economic circumstances have changed comes from experience.
“You’ve got to be humble enough to realize and recognize when you’re wrong and be able to change your mind,” he says.
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What Is a Portfolio Manager? originally appeared on usnews.com
