Asset ManagementAsset Management-Portfolio Manager--Portfolio Manager-
Tetsuya [email protected]
October 9, 2005Tozzi Finance Center
Today’s Agenda
• Portfolio Management Overview– What is Portfolio Manager?– Career Path for a Portfolio Manager – Skills
• Investment Decision Making Style– Investment Style– Top down / Bottom up– Typical day
• Main Players• Books
What is Portfolio Manager?
• Portfolio managers make investment decisions for a portfolio of assets, and expected to produce excess return to benchmark (ex. S&P 500)
• Portfolio Managers decide which stocks and what % they should buy for their portfolio
– Buy-side analysts help portfolio managers to identify which stocks are good, but do not recommend what %
• Portfolio managers need to adjust the portfolio to control portfolio risk (ex. BARRA analysis)
– To control risk, P.M. might need to buy stocks that they don’t like.
Career Path to Portfolio Manager
It is very difficult for MBAs to directly get a Portfolio manager position. We need a bridge.
Typical Career Path will be, – People spend several years as a research analyst – Firms rotate analysts to several sectors every a couple of
years – Some firms assign analysts to manage sector fund(s)– Finally, good stock pickers are promoted to Portfolio managers
Skills
• Skills mentioned during Fidelity campus recruiting session– Integrity– Curiosity: Keep asking “why”– Creative/Independent thinker: Can be contrarian?– Individual/Teamwork achievement– Entrepreneur– Communication– Passion in financial market
P.M. involves judgment..
Buy/Sell-sidesEconomistsStrategists
Buy-sideSell-sideAnalysts
Individual
Company
(earning
guidance etc.)
Portfolio Manager
MediaPaper, News, Magazines etc.
Own Experience(ex. I like eBay.Am I biased? )
Final Portfolio/Risk Control
Portfolio managers always judge information; Important? Correct? Biased?
How do P.M.s build portfolio?• Top down approach
– General to specific– Start with the macroeconomic view, then identify which sectors
perform better, and finally choose stocks• Portfolio managers decide
– First, sector allocation – Second, individual stocks weights%– Finally, adjust portfolio risk
• Bottom up approach– Start with Stock fundamentals
• Portfolio managers decide– First, individual stocks and weight%– Second, build initial portfolio– Finally, adjust portfolio risk
Investment Style
• There is a range of different styles– Growth, Value, Small/Mid cap., Indexed, market
neutral, etc.
Large
Mid
Small
Blend GrowthValueValue Blend Growth
– Very important to understand which investment style your target firm(s) employ
– Firms/Funds have their own investment style, categories. These styles are very consistent.
Investment Style (Cont.)• Growth Stock
– Stock of a company with faster growing earnings than its industry or overall market. Usually pay little or no dividends. Instead, use income to finance future growth
• Value Stock– Stock of a company which is not expanding rapidly but has
excellent fundamentals. Stock is considered undervalued, but expected to appreciate in near future.
Large
Mid
Small
Value Blend Growth
Large
Mid
Small
Value Blend Growth
• Large: >$5 billion
• Medium: $1.5 million - $5 billion
• Small: $250 million - $1.5 billion
Typical Day
• Working style varies firm by firm. (Below is very simplified schedule)
• Earning release seasons are very tough (ex. 5 earnings on one day. You might need to follow all of them.)
6:00 Wake up & check NY market7:30-45 Arrive at office / Review US market & Economic indicators
8:00 Morning meeting with in-house research analysts9:00 Maket Open
10-12:00 Meeting with Corporate IR/ Sell-side analysts12:00 Lunch
13-17:00Meeting with Corporate IR/ Sell-side analystsMaking financial models/Reseach individual companiesPortfolio review with teammembers
17-20:00 Writing memo/reports to my teammembersPrepare for tomorrow's meetins
Main PlayersCompany name Asset under management
billion USD1 Fidelity Investments 1,1392 State Street Global 1,1063 Barclays Global 1,0704 Vangard Group 7255 Deutsche Asset Management 7156 Mellon Financial 6177 JP Morgan Fleming 5598 Capital Research 5329 Citigroup Asset Management 521
10 Merrill Lynch 50011 Nothern Trust Global 47912 Alliance Capital 47513 UBS Global Asset Management 45614 AIG Global Investments 44115 Prudential Financial 432
Source: Pension and Investments as of Jan. 2004
Recommended Books
• Portfolio Manager 101– Peter Lynch
• One Up on Wall Street• Beating the Street• Learn to Earn
– Jim Rogers• Investment Biker• Hot Commodities• Adventure Capitalist
• More recommended books http://webuser.bus.umich.edu/Organizations/investmentclub/Roadmap.doc
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