PORTFOLIO MANAGEMENT

Introduction
Art and science of selecting and overseeing a group of investments to meet a person's or
company's objectives and risk tolerance.
The goal is to invest while maximizing returns and minimizing risks.
Types
1. Active
This is when the manager makes specific investments to outperform an investment benchmark
index.
2. Passive
Refers to when the manager attempts to replicate the index performance.
Process of portfolio management
A systematic approach to making investment decisions
Step 1: Planning
Identify financial goals and risk tolerance, as well as any constraints that refer to any limitations
on investment decisions or choices.
Step 2: Asset allocation
Based on investment policy, the portfolio manager decides on the appropriate mix of assets.
Strategic is a long-term strategy that necessitates regular rebalancing ensuring one doesn't
deviate from one's goals. Tactical ignores long-term plans reacting to changing market
conditions by making frequent changes for short-term gains.
Step 3: Security selection
Select individual securities within which each asset class will make up the portfolio.
Step 4: Portfolio construction
Involves combining selected securities in a manner that adheres to the planned asset allocation
Step 5: Monitoring and rebalancing
Regulary monitoring and evaluating risk exposures within the portfolio to rebalance according to
asset allocation.
Step 6: Performance measurement and reporting
Measuring the performance of the portfolio against benchmarks. Assessing the effectiveness of
the portfolio management strategy.
Step 7: Review
Feedback and review help in making necessary adjustments to the portfolio in response to
changes in the market.