Functions of a portfolio manager

The planning step: The first thing a portfolio manager does is to discuss with the client in order to understand his investment objective, goal and level of risk the customer is willing to take. Thus, after the agreement with the customer the investment objectives and policies are formulated, constraints are determined, capital market expectations are formed, and strategic asset allocations are established and an investment policy statement is created (cfainstitute,2018). An investment policy statement is a formal document between the portfolio manager and the client which clearly sets the investor’s goals, objectives and constraints. It allows the investor to determine the factors that are personally important and should be reflected in the investment plan and without it the success of a financial plan is at risk (Reilly et al. 2002 :53). The failure to follow an investment policy statement is evidence of a breach of fiduciary responsibility.
The execution step: After the planning step comes the construction and implementation of the portfolio. The manager together with the investor determine how to allocate the available funds across their options (bonds, stocks, securities etc). The portfolio selection/ composition should minimise the investor’s risk as well as meeting the investor’s needs according to the policy statement. The next step in the process is to implement this portfolio. What is important to be noted in this step is that high transaction explicit and implicit costs like taxes, fees, commissions, bid-ask spread, opportunity costs, market price impacts, etc. can reduce the performance of the portfolio. Hence, the execution of the portfolio needs to be appropriately timed and well-managed (efinancemanagement).

The feedback step: after the funds are invested according to the plan, the manager monitors, evaluates and update the portfolio compared with the plan. The managers must continually monitor the investor’s needs and the capital market conditions so that they can evaluate the portfolio’s performance and compare the relative results to the expectations and requirements of the policy statement. Any changes, updating and rebalancing suggested by the feedback must be examined carefully to ensure that they represent long-run considerations.

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