Portfolio Manager

Portfolio Manager Meaning

A portfolio manager is an executive who is responsible for making investment decisions and manage investment portfolios with the primary goal to meet the clients’ financial and investment-related objectives and work towards the maximum benefit of the client with the minimum possible risk.

Below is the list of functions, roles, and responsibilities of a portfolio manager:

Apart from all this, they must clarify to the investor that no matter how much planning is done, there would arise unavoidable circumstances that might arise in the course of investment and that the investor must be ready and have sufficient funds to tackle the same.


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What does a Portfolio Manager Exactly Do?

We can divide the process of portfolio management into six phases/steps:

  1. Ascertain the client’s objective.

  2. Select the most suitable asset class.

  3. Conduct the strategic asset allocationAsset AllocationAsset Allocation is the process of investing your money in various asset classes such as debt, equity, mutual funds, and real estate, depending on your return expectations and risk tolerance. This makes it easier to achieve your long-term financial goals.read more i.e., setting weights for the suitable asset classes.

  4. Conduct Tactical Asset Allocation – This refers to adjusting the weights within the portfolio.

  5. Manage Risk.

  6. Measure Performance using the Capital Asset Pricing ModelCapital Asset Pricing ModelThe Capital Asset Pricing Model (CAPM) defines the expected return from a portfolio of various securities with varying degrees of risk. It also considers the volatility of a particular security in relation to the market.read more. This can be done by calculating the Alpha (α) – expected returnExpected ReturnThe Expected Return formula is determined by applying all the Investments portfolio weights with their respective returns and doing the total of results. Expected return = (p1 * r1) + (p2 * r2) + ………… + (pn * rn), where, pi = Probability of each return and ri = Rate of return with probability. read more, BetaBetaBeta is a financial metric that determines how sensitive a stock's price is to changes in the market price (index). It's used to analyze the systematic risks associated with a specific investment. In statistics, beta is the slope of a line that can be calculated by regressing stock returns against market returns.read more (β) – systematic risk, and the Residual risk.

Now that we have learned the major responsibilities of the manager, let us know some of the qualities the portfolio manager must possess in order to perform well:

  • Ability to communicate i.e., strong communication skills
  • The anticipation of the market performance
  • Patience
  • Decisiveness
  • Capability to generate ideas
  • Self- Sustainability
  • Competitive Spirit
  • Emotional Balance
  • Analytical Ability

Types of Portfolio Manager

Types of Portfolio Manager

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The following are types of portfolio managers.

#1 – Bases on Clients They Serve

  • Individual Clients
  • Institutional Clients

Whatever be the type of the clients they serve, the main of the objective does not change. It would be to satisfy the needs and financial goals of the respective clientele.

#2 – Based on Approach

  • Active Approach – A manager with an active approach would be aggressive and would attempt to beat the market returns.
  • Passive Approach – A manager with a passive approach, he would usually prefer to buy stocks that reflect the market performance i.e., market index. When such an approach is followed, investors expect returns equivalent to that of the market index.

Example of the Portfolio Manager

Let us understand the function of a portfolio manager with the help of a numerical example:

You can download this Portfolio Manager Excel Template here – Portfolio Manager Excel Template

There is a portfolio manager, say K. K has experience in managing investment portfoliosInvestment PortfoliosPortfolio investments are investments made in a group of assets (equity, debt, mutual funds, derivatives or even bitcoins) instead of a single asset with the objective of earning returns that are proportional to the investor's risk profile.read more and feels that he can follow a proper strategy and gain results rather than just following the market index. He is a manager following an active approach, or we can say, he is an aggressive portfolio manager.


Calculation of portfolio Value will be –


As per the requirements and the risk appetiteThe Requirements And The Risk AppetiteRisk appetite refers to the amount, rate, or percentage of risk that an individual or organization (as determined by the Board of Directors or management) is willing to accept in exchange for its plan, objectives, and innovation.read more of the clients of K, he can manage from one investment firm to another, maintaining the total value of the portfolio.

Advantages of Portfolio Manager

Portfolio management by a manager helps in:

  • Avoiding disasters in investments.
  • Reducing risks by reducing volatility in the portfolio.
  • Optimal allocation of funds.

Important Points

The various investment styles used by a manager are as follows:

Based OnType
CapitalizationSmall CapLarge Cap

Financial Advisor vs Portfolio Manager Differences

The terms ‘financial advisor’ and ‘portfolio manager’ are often used synonymously. But there are differences between the two. Let us now learn the differences:

Point of DifferenceFinancial AdvisorsPortfolio Managers
RoleThey do not support the long-term financial objectives of the client. Financial advisors suggest clients based on their financial situation.The portfolio manager’s job is to take care of the client’s financial and investment-related objectives.
DutyFinancial advisors are not having any legally bound by a trust to the client.They are legally bound by a trust to act to the client’s best interest.
FeeThey earn fees and commission based on the products that are sold to the client by them.They receive a fee based on the percentage of assets managed by them.
ManagementThey may sometimes be compelled to overtrade to boost theirs.Since they do not receive a commission, they do not try to oversell products that are not useful for the client of products that are not in their best interest.

Investors, in reality, prefer portfolio managers over financial advisors for managing their periodical income, benefits, and savings.


To sum up, performing the role of a portfolio manager is very risky challenging, but at the same time, it offers rewards adequately. It offers a wide range of challenges as well as opportunities for growth, earning, and learning. A person with a willingness to take up risks and preparedness to spend a lot of time researching, with a flair for financial marketsFinancial MarketsThe term "financial market" refers to the marketplace where activities such as the creation and trading of various financial assets such as bonds, stocks, commodities, currencies, and derivatives take place. It provides a platform for sellers and buyers to interact and trade at a price determined by market forces.read more, and with an ability to analyze can pursue suitable courses that enable him/her to become a portfolio manager.

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This has been a guide to who is a portfolio manager, and it’s meaning. Here we discuss what does a portfolio manager exactly do along with example and advantages. You can learn more about financing from the following articles –

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