Asset Management Overview


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Asset Management Overview

  1. 1. Asset Management -Portfolio Manager- Tetsuya Hirano thirano @ umich . edu October 9, 2005 Tozzi Finance Center
  2. 2. Today’s Agenda <ul><li>Portfolio Management Overview </li></ul><ul><ul><li>What is Portfolio Manager? </li></ul></ul><ul><ul><li>Career Path for a Portfolio Manager </li></ul></ul><ul><ul><li>Skills </li></ul></ul><ul><li>Investment Decision Making Style </li></ul><ul><ul><li>Investment Style </li></ul></ul><ul><ul><li>Top down / Bottom up </li></ul></ul><ul><ul><li>Typical day </li></ul></ul><ul><li>Main Players </li></ul><ul><li>Books </li></ul>
  3. 3. What is Portfolio Manager? <ul><li>Portfolio managers make investment decisions for a portfolio of assets, and expected to produce excess return to benchmark (ex. S&P 500) </li></ul><ul><li>Portfolio Managers decide which stocks and what % they should buy for their portfolio </li></ul><ul><ul><li>Buy-side analysts help portfolio managers to identify which stocks are good, but do not recommend what % </li></ul></ul><ul><li>Portfolio managers need to adjust the portfolio to control portfolio risk (ex. BARRA analysis) </li></ul><ul><ul><li>To control risk, P.M. might need to buy stocks that they don’t like. </li></ul></ul>
  4. 4. Career Path to Portfolio Manager <ul><li>It is very difficult for MBAs to directly get a Portfolio manager position. We need a bridge. </li></ul><ul><li>Typical Career Path will be, </li></ul><ul><ul><li>People spend several years as a research analyst </li></ul></ul><ul><ul><li>Firms rotate analysts to several sectors every a couple of years </li></ul></ul><ul><ul><li>Some firms assign analysts to manage sector fund(s) </li></ul></ul><ul><ul><li>Finally, good stock pickers are promoted to Portfolio managers </li></ul></ul>
  5. 5. Skills <ul><li>Skills mentioned during Fidelity campus recruiting session </li></ul><ul><ul><li>Integrity </li></ul></ul><ul><ul><li>Curiosity: Keep asking “why” </li></ul></ul><ul><ul><li>Creative/Independent thinker: Can be contrarian? </li></ul></ul><ul><ul><li>Individual/Teamwork achievement </li></ul></ul><ul><ul><li>Entrepreneur </li></ul></ul><ul><ul><li>Communication </li></ul></ul><ul><ul><li>Passion in financial market </li></ul></ul>
  6. 6. P.M. involves judgment.. Buy/Sell-sides Economists Strategists Buy-side Sell-side Analysts Individual Company (earning guidance etc.) Portfolio Manager Media Paper, News, Magazines etc. Own Experience (ex. I like eBay. Am I biased? ) Final Portfolio/ Risk Control Portfolio managers always judge information; Important? Correct? Biased?
  7. 7. How do P.M.s build portfolio? <ul><li>Top down approach </li></ul><ul><ul><li>General to specific </li></ul></ul><ul><ul><li>Start with the macroeconomic view, then identify which sectors perform better, and finally choose stocks </li></ul></ul><ul><ul><ul><li>Portfolio managers decide </li></ul></ul></ul><ul><ul><ul><ul><li>First, sector allocation </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Second, individual stocks weights% </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Finally, adjust portfolio risk </li></ul></ul></ul></ul><ul><li>Bottom up approach </li></ul><ul><ul><li>Start with Stock fundamentals </li></ul></ul><ul><ul><ul><li>Portfolio managers decide </li></ul></ul></ul><ul><ul><ul><ul><li>First, individual stocks and weight% </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Second, build initial portfolio </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Finally, adjust portfolio risk </li></ul></ul></ul></ul>
  8. 8. Investment Style <ul><li>There is a range of different styles </li></ul><ul><ul><li>Growth, Value, Small/Mid cap., Indexed, market neutral, etc. </li></ul></ul>Large Mid Small <ul><ul><li>Very important to understand which investment style your target firm(s) employ </li></ul></ul><ul><ul><li>Firms/Funds have their own investment style, categories. These styles are very consistent. </li></ul></ul>Blend Growth Value Value Blend Growth
  9. 9. Investment Style (Cont.) <ul><li>Growth Stock </li></ul><ul><ul><li>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 </li></ul></ul><ul><li>Value Stock </li></ul><ul><ul><li>Stock of a company which is not expanding rapidly but has excellent fundamentals. Stock is considered undervalued, but expected to appreciate in near future. </li></ul></ul><ul><li>Large: </li></ul><ul><ul><li>>$5 billion </li></ul></ul><ul><li>Medium: </li></ul><ul><ul><li>$1.5 million - $5 billion </li></ul></ul><ul><li>Small: </li></ul><ul><ul><li>$250 million - $1.5 billion </li></ul></ul>
  10. 10. Typical Day <ul><li>Working style varies firm by firm. (Below is very simplified schedule) </li></ul><ul><li>Earning release seasons are very tough (ex. 5 earnings on one day. You might need to follow all of them.) </li></ul>
  11. 11. Main Players
  12. 12. Recommended Books <ul><li>Portfolio Manager 101 </li></ul><ul><ul><li>Peter Lynch </li></ul></ul><ul><ul><ul><li>One Up on Wall Street </li></ul></ul></ul><ul><ul><ul><li>Beating the Street </li></ul></ul></ul><ul><ul><ul><li>Learn to Earn </li></ul></ul></ul><ul><ul><li>Jim Rogers </li></ul></ul><ul><ul><ul><li>Investment Biker </li></ul></ul></ul><ul><ul><ul><li>Hot Commodities </li></ul></ul></ul><ul><ul><ul><li>Adventure Capitalist </li></ul></ul></ul><ul><li>More recommended books </li></ul><ul><li> </li></ul>