Euronews Business looks at how to choose a good investment portfolio manager, why you need one in the first place, and how to decide if it’s time to part ways.
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Choosing the right investment portfolio manager can often mean the difference between success and potential failure in achieving your long-term financial goals. However, some people prefer to manage their investments and assets themselves.
The question is, with so many investment portfolio managers out there, how do you know what makes a good portfolio manager? Euronews Business looks at what qualifications you need, what questions you need to ask and how you should put together your portfolio.
Why is it important to have a portfolio manager?
Drayton D’Silva, CEO and Chief Investment Officer of Tower Hills Capital, says the interaction between investments is just as important as investment selection.
“The portfolio objective should be a well-diversified portfolio that meets ongoing cash/liquidity needs while optimizing risk and return for the relevant time period.”
Mikhail Dobrinov, founder and chief information officer of Trimon Capital, says that a well-constructed portfolio must meet certain risk parameters in order to behave in a more or less predictable manner. states.
“Due to the mathematics of portfolios, individual investors cannot always determine and achieve optimal asset allocation,” he explains. “Selecting the right stocks, bonds, exchange-traded funds (ETFs), or mutual funds requires certain knowledge, skills, and access to data.
“Professional portfolio managers can use specialized software tools to optimize the risk and return of a portfolio according to the investor’s goals.Moreover, managing an investment portfolio is a dynamic and interactive process. ”
Dobrinov also points out that return expectations, volatility, and correlations between assets change over time, so the portfolio construction process needs to be able to account for this and adjust accordingly. “Otherwise, the portfolio style and asset allocation may fluctuate and become inappropriate for the investor.
“Portfolio monitoring and rebalancing can be a time-consuming and complex task for many investors.Finally, each portfolio must be compared to an appropriate relative benchmark to assess performance. Here too, access to the right information, data and tools is critical for correct performance evaluation,” Dobrinov added.
Sean Carpenter, founder and CEO of Stock Alarm, told Euronews: “Investing is more than just picking stocks. The market is always changing, and most of us don’t have the time to keep up with all the changes.”
“This is where fund managers come in. They monitor your investments and help you work smarter and adjust your strategy as needed. Treat them as your personal financial guide. Please think about it.”
What should you look for when choosing a portfolio manager?
With so many portfolio managers out there today, how do you choose one? Should you value experience more, or someone who matches the personality and values you’re looking for in a portfolio manager? Should we give more value to? The right answer could be the perfect balance of both.
Jackie Smith, portfolio manager for Reinders at McVeigh Capital Management, says, “Aside from the obvious professional qualifications, being a good listener, understanding what you care about, and what motivates you.” It’s important to find people who understand who you are and what makes you tick.” What are your money goals and what do you feel your values align with?
“This is a person’s life savings that they have entrusted to you, so it is very important to consider capital preservation when choosing a manager.” One is to ask the portfolio manager’s up-and-down view of how their performance compares to the benchmark during periods of positive and negative market returns. I am.
“The goal is to find managers that typically lose less when markets are down and outperform when markets are strong.
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“We know that sustainable portfolios tend to have lower volatility, but when a portfolio has periods of volatility or negative returns, it can be a sign that your investments are in line with your values and are doing no harm. It helps us to know that we are making a positive impact on society.”
“Clients also want to hear the story behind the stocks and why they chose them. This allows them to be involved in the process and bring their portfolio to life.”
“Apart from someone you really like on a personal level, who you’ll be talking to for decades, what matters is experience, track record and qualifications,” says George McNeil, a chartered financial planner at DGS Chartered Financial Planners.
“Make sure the person has some experience, see what their portfolio is, see what their track record is, make sure they have the right qualifications, make sure there are any issues. Absolutely make sure you have protection in case it happens.”
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Portfolio managers are typically required to hold one or more certifications, such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Certified Investment Management Analyst (CIMA), or Financial Risk Management (FRM). In most cases, a bachelor’s and master’s degree are also required.
In Europe, they must also meet requirements set by the European Securities and Markets Authority (ESMA), while in the UK they must follow Financial Conduct Authority (FCA) rules and in the US, they must follow Financial Conduct Authority (FCA) rules. of the Securities and Exchange Commission (SEC). In the United States, portfolio managers may also be required to be licensed by the Financial Industry Regulatory Authority (FINRA).
Skills that a portfolio manager should ideally possess include risk management, financial analysis, decision making, communication, and strategic thinking.
Signs that suggest you need to change portfolio manager
In some cases, even after finding a portfolio manager and working with them for several years, you may not be able to get satisfactory returns. There may also be clashes in investment management styles and other issues.
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Should I change portfolio managers in this case?
Faris Khatib, CEO of Ideal Tax, said: “A sign to switch to a new portfolio manager is a steady decline in performance accompanied by stagnation in the strategy. A lack of proactive communication also raises red flags, as people may only contact you if something is wrong. may be shown.”
“An inability to explain the reasoning behind certain decisions or recommendations can go further. If your portfolio manager is showing signs of this, it’s time to reconsider your partnership.”
McNeil explains: “We cannot control the global economy, but if performance is consistently poor when the overall economic direction is up, we invite a meeting with our portfolio managers to discuss this and seek clarification.” We recommend checking to see if it is.
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“Another sign is radio silence. This is considered a long-term relationship between you and them, and you (possibly) trust them with your savings. You need to communicate with them properly.”
Smith also suggests it’s time to change your portfolio manager if you feel like your portfolio manager isn’t listening to you or taking your risk tolerance or investment horizon into account when configuring your portfolio’s asset allocation. He also pointed out that it might be possible.
“It’s important to understand your client and what they care about, so if you feel like your PM isn’t trying to get to know you better, consider looking elsewhere. It may be time. An example of this would be if you are a lung cancer survivor and own stock in a tobacco company.
Dobrinov believes that significant portfolio fluctuations in terms of style and asset allocation may be a sign that a new portfolio manager is needed. He says volatile trading and high turnover can also mean a lack of discipline and conviction.
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Similarly, consistently choosing a high-cost ETF or fund when there are other very similar, cheaper options can be a red flag.
Also, beware of vague and hidden fees. The best portfolio managers will clearly disclose their fee structure, so you know exactly what you’re paying.
How should I build a portfolio?
There are many ways to construct a portfolio, depending on the investor’s needs, age, amount of capital, investment experience, etc.
Steven Kibbel, a certified financial planner with Kibbel Financial Planning, says: “To balance risk and return, a properly constructed portfolio is typically diversified across many asset types, such as stocks, bonds, and real estate. Your portfolio should represent your finances.” Purpose, Investment period, risk tolerance.
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“For example, a younger investor may prefer a portfolio weighted towards growth stocks, while an investor nearing retirement may choose a more prudent, income-oriented allocation.”
“There are different approaches and philosophies, but fundamentally it should be structured in a way that suits the customer’s risk appetite,” McNeil said. You can take a little more risk than an older client with limited knowledge.
“Furthermore, asset allocation determines the majority of outcomes over time (80%, according to the report). I will do it.
“Portfolio managers can take some positions in which regions they think will be most advantageous in time, but essentially they are able to take different regions (US, UK, EU, etc.) and asset classes (equities, Real estate, bonds, etc.) need to expand.
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“Finally, the client needs to be able to understand the portfolio. It needs to be sensible and well-understood or it will fail,” McNeil added.
Disclaimer: This information does not constitute financial advice. Always do your own research to ensure it is appropriate for your particular situation. Also remember that we are a journalist’s website and aim to provide you with the best guides, tips and advice from the experts. Any reliance you place on the information on this page is strictly at your own risk.
