Asset Management Portfolio Manager

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Asset Management-Portfolio Manager-

• Tetsuya Hirano
• thirano_at_umich.edu
• October 9, 2005
• Tozzi Finance Center

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Todays 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

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What is Portfolio Manager?

• Portfolio managers make investment decisions for
  a portfolio of assets, and expected to produce
  excess return to benchmark (ex. SP 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 dont like.

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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

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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

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P.M. involves judgment..
Portfolio managers always judge information
Important? Correct? Biased?
Media Paper, News, Magazines etc.
Buy/Sell-sides Economists Strategists
Final Portfolio/ Risk Control
Buy-side Sell-side Analysts
Portfolio Manager
Own Experience (ex. I like eBay. Am I biased? )
Individual Company (earning guidance etc.)
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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

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Investment Style

• There is a range of different styles
• Growth, Value, Small/Mid cap., Indexed, market
  neutral, etc.

• 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.

Large
Mid
Small
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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
• gt5 billion
• Medium
• 1.5 million - 5 billion
• Small
• 250 million - 1.5 billion

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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.)

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Main Players
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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/in
  vestmentclub/Roadmap.doc