Under portfolio management is defined as the creation and management of a portfolio , ie a stock of investments , in accordance with the agreed with the investor's investment criteria, particularly by buying and selling in view of the expected market developments.
Two basic strategies can be distinguished: The top-down approach (from the top down) starts with the goals and tries to define the strategy on their basis . The strategy results from the analysis and the decision based on it. This results in the tactics, which are finally examined by the performance analysis. The opposite way is called the bottom-up approach .
The portfolio management process includes the
- Portfolio planning (investor analysis, financial analysis, asset management analysis)
- Portfolio realization ( asset allocation , monitoring, revision)
- Portfolio control (performance measurement, attribution)
The basic problem of portfolio management in the financial sector is the composition of the expected return over a certain period of time (i.e. growth in value including interest plus dividends minus costs and the weighing of risks ). These are competing goals that can be set depending on the needs of the investor. Investors are anonymous, it is called mutual funds , different for individual private clients for whom a personally tailored investment is operated. In addition, they can be special funds that are set up by credit institutions , investment companies or insurance companies . The respective performance is based on a comparative scale (English benchmark rates).
The following categories must be taken into account when considering the wishes of investors:
- Investment medium
- Investment policy
- Risk classes
Strategic portfolio management means defining the portfolio structure and portfolio style.
In accordance with the portfolio objectives, it is determined which goods are held in the portfolio ( so-called asset classes ). These can be financial stocks ( stocks , bonds or derivatives ), real estate or goods. Here is a rough breakdown of the structural components, e.g. 60% shares and 40% pensions.
The spread is qualitative (possibly also quantitative) according to regions, industries and between standard and secondary stocks.
If the structure is kept rigid, this means countercyclical behavior that is more of a speculative character. Procyclical behavior, on the other hand, is considered conservative, but can lead to strong changes in the percentage composition. The changes in the composition also depend on the portfolio style.
The basis of the definition is the existence of a so-called comparative index, also known as a benchmark. Indices are made up of various securities, with the number ranging from a dozen to several thousand. The index provider usually constructs this composition according to certain rules and is responsible in particular for calculating and displaying returns. The design can also be done by the customer.
Active investment style
An investment style is called active if there is a deviation from the return of the underlying benchmark. How this deviation is initiated by the manager is not up for discussion. It is important to recognize that this deviation can occur with instruments that are not underlying the index. Because even the use of financial instruments that are not included in the index does not necessarily have to lead to an active return deviation.
Passive investment style
In contrast to the active investment style, the passive style is meticulous in ensuring that the yield deviations compared to the underlying index are as small as possible. This can be achieved with various techniques - the complete mapping of all index securities is mentioned as one possibility - but this index replication can easily be achieved by buying highly correlated financial instruments.
Semi-passive investment style
This is a hybrid between an active and a passive investment style, with a replication error of 2% as the unit of measurement for the imaging accuracy, which is usually the maximum for a semi-passive investment style.
A securities analysis can be the basis for the portfolio management tactics. In securities analysis, technical and fundamental analyzes are carried out. A distinction must be made between short-term (short) and medium- to long-term (long) goals. The short and long criteria play a major role in stock picking . The rules for the tactics can be specified by the investor, as they are related to possible risks. In the short segment in particular, portfolio management is therefore often carried out with technical support from computer programs in order to keep costs as low as possible.
The performance analysis is used to determine the success of a portfolio. This can be done in different ways:
- by comparison with a benchmark
- Comparison of return and risk, for example using the Sharpe quotient or Jensen's Alpha
Attribution analysis, that means breaking down the result into components:
- tactically determined
- structural reasons.
Monkey stock index
In a monkey study, based on a computer simulation of the monkey brain , a portfolio of 1000 stocks was combined into an index and analyzed over a simulated period of 43 years. The scientists from the renowned Cass Business School in London found that the artificial monkey intelligence performed better than the indices created by humans. It should be noted that the study only compared the monkeys' results with indices and not with mutual funds .
- Rüdiger Götte: The basics of portfolio management. A textbook and workbook for beginners and advanced learners. Ibidem-Verlag, Stuttgart 2005, ISBN 3-89821-442-7 .
- Koenigstein, Martin. Real estate portfolio management - scoring models and their influencing factors for office real estate . Vienna 2005, Master's thesis in real estate courses at the Vienna University of Technology.
- Monkeys make more profits than investors on Welt.de. Retrieved April 18, 2013