Wednesday May 25, 2022

Without a good portfolio manager, don’t earn money. Let’s see how to recognize quality

When deciding on an investment in a mutual fund, investors often follow the investment strategy, risk, expected return, etc. However, they are always interested in the longest person, the portfolio manager. How do you know a good portfolio manager and what are you in charge of in the funds?

Catch funds are most often criticized for the fact that the investor is practically unable to find out where the funds he has invested in the mutual fund are invested. An investor who wants to make full decisions about the exchange of his funds will not choose funds.

On the other hand, those who do not have enough experience may have time to engage in investment strategies and the selection of suitable securities, most likely after a mutual fund. In practice, they choose a portfolio manager who decides whether the fund will decide whether or not to invest.

And when we opt for a stock or bond fund, conservative or dynamic, a person’s portfolio manager (according to PM) and his abilities, skills and priorities are very important factors that affect the investment style and ultimately the final result of the investment.

Each manager’s portfolio is, of course, subject to high demands and cannot be used by anyone. Each individual has to meet certain preconditions, especially what he is learning, experience in the field, stable performance in previous work or even a psychological profile.

How to know the quality

A good portfolio manager is known mainly by the extent to which he is able to beat the index or benchmark of the fund he manages. According to many investors, a good PM simply has to be issued at any price, but the reality may be a bit different. Even a good manager (and therefore a share of the fund) may be in a lot for a while (today it is a salary for most equity funds), but when evaluating it, it is very important to compare it with its competitors, or a benchmark that I can significantly surpass.

The monitoring of competition and the benchmark is especially important when investing in funds with low expected returns (bonds, money market), where the existence of fees is much more pronounced than in funds with growth potential, and it is much more difficult to beat the index itself.

The first benchmark, the benchmark index, can be very often cursed for managers, so that the portfolio manager (in accordance with the fund’s strategy) has more to say. There is only a small so-called freestyle fund, which does not have a comparison index (or a group of index) at all and manaei invest only on the basis of their own introduction.

In order for the manager to be able to beat the competition and especially the benchmark, I can speculate on short-term movement of individual titles, deviate from industry change (pharmacy city technology), regional structure (EU city USA), or the nature of individual titles in the benchmark. I can increase or decrease according to various, independent (shares or bonds) assets in the portfolio.

In the bond portfolio, it is possible to change bonds with different durations, or to increase, respectively. reduce the credit risk of bonds (by purchasing corporate bonds, high-yield bonds, etc.). In the case of the purchase of assets denominated in different currencies, the potential performance of the elimination fund may be increased to the currency in which the fund is held.

Of course, all these procedures increase both the risk of losses and the costs that affect the fees, and therefore for these funds the requirement for the quality of the manager to go more pronounced than for ordinary funds, which more and less the benchmark.

The opposite of freestyle funds are the index funds, which are compared to the index dr as mon as possible. There are many less demands on the manager’s skills, which is why these funds are often much cheaper.

There are many proponents of this passive approach to investing, arguing primarily the cost and number of actively managed funds that have never exceeded their benchmark. In the end, however, these arguments are often refuted (the inability to accurately copy the index, the added cost of exchange action in the index, the possible change of individual titles and the possibility of lack of diversification) and conservative investors are recommended other tools that copy indices such as certificates, ppadn ETF.

You are at Investujeme.cz

Back to Top