Activities of Portfolio management

· Creating a product strategy including products, strategy approach, markets, customers, competitive emphasis, etc · Understanding the budget or resources available for balancing the portfolio · Assessment of project for investment requirements, risks, profitability and other suitable factors The portfolio management techniques must be used for the proper balance of following goals.

· Risk vs. profitability

· New products v/s Improvements

· Strategy fit v/s Reward

· Market v/s Product line

· Long-term v/s short-term

Initially, the Portfolio Management techniques are used for optimizing the financial returns or projects’ profitability by applying heuristic or mathematical models. However, this approach fails to address the need to balance the portfolio as per the organization’s strategy. Later, Scoring techniques came into picture when these are used for weighting and scoring criteria for considering factors such as profitability, risk, investment requirements, and strategic alignment. The drawbacks of these techniques include inability to optimize the mix of projects and over emphasis on financial measures. Mapping techniques are widely used for visualizing a portfolio’s balance by graphical presentation in the form of a two-dimensional (2 D) graph that displays balance between two factors as mentioned below.

· Marketplace fit vs. product line coverage

· Risks vs. profitability

· Financial return vs. probability of success

The development of new product needs significant investments and Portfolio Management has become widely used tool for making strategic decisions regarding the product development and the investment of company resources. The revenues are based increasingly on new products that are developed during last one to three years. Therefore, the company’s profitability and its continued existence depend on the portfolio decisionsregarding the product development and the investment of company resources. The revenues are based increasingly on new products that are developed during last one to three years. Therefore, the company’s profitability and its continued existence depend on the portfolio decisions.

Strategies Provided Through Portfolio Management Are:

Portfolio management strategies.

Portfolio Management Strategies refer to the approaches that are applied for the efficient portfolio management in order to generate the highest possible returns at lowest possible risks. There are two basic approaches for portfolio management including Active Portfolio Management Strategy and Passive Portfolio Management Strategy.

Active Portfolio Management Strategy:

The Active portfolio management relies on the fact that particular style of analysis or management can generate returns that can beat the market. It involves higher than average costs and it stresses on taking advantage of market inefficiencies. It is implemented by the advices of analysts and managers who analyze and evaluate market for the presence of inefficiencies.

The active management approach of the portfolio management involves the following styles of the stock selection.

Top-down Approach: In this approach, managers observe the market as a whole and decide about the industries and sectors that are expected to perform well in the ongoing economic cycle. After the decision is made on the sectors, the specific stocks are selected on the basis of companies that are expected to perform well in that particular sector.

Bottom-up: In this approach, the market conditions and expected trends are ignored and the evaluations of the companies are based on the strength of their product pipeline, financial statements, or any other criteria. It stresses the fact that strong companies perform well irrespective of the prevailing market or economic conditions. Benefits of Active portfolio Management strategy· The active portfolio management strategy allows the portfolio managers to select a variety of investments rather than investing in the market as a whole. There may be different kinds of motivations for the investors to follow active management strategy. · In order to generate profits, the investors consider that some market segments are less efficient than others. · Portfolio Manager may manage the volatility or risks of market by investing in less-risky and high-quality companies instead of investing in market as a whole. · Investors may take additional risk for achieving higher-than-market returns. · Those investments which are not vastly correlated to the market function as portfolio diversifier and decrease the portfolio volatility as a whole. · Investors may follow a strategy for avoiding certain industries in comparison to the market as a whole. · Investors that follow actively-managed fund are more aligned for achieving their specific investment goals.