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Portfolio Managers: Calling the Shots If your mutual fund were a football team, the portfolio manager would be the quarterback – the player responsible for using all available resources to keep moving forward. Basically, a portfolio manager controls the assets of your mutual fund by buying and selling individual holdings to meet the fund’s stated goals.
So, if Fund XYZ’s objective is growth and income, the portfolio manager will fillthe fund with some investments that offer growth potential and some that offer current income. Portfolio managers make their buy and sell decisions based on a variety of factors, including the performance of individual investments, economic conditions and the outlook for specific industries. These managers also watch the “tax efficiency” of their funds bymonitoring tax-generating transactions.
Analysts: Crunching Numbers and Watching People Among the vast universe of investment possibilities, which stocks, bonds, government securities and other vehicles are suitable for Fund XYZ? It’s the analyst’s job to make that decision. Analysts rely on “hands-on” or “organic” research, which comprises the following elements:
• Numbers – Analysts thoroughly review a company’s financial statement, which provides a snapshot of how the business is doing at any given time. In reviewing these statements, analysts focus on a variety of data, including the growth rate of sales and earnings, cash flow and debt load. Analysts also compare a business’s performance with that of others in the same industry.
• People – To an analyst, a company’s numbers are important – but so are its people. By talking regularly with managers and other key personnel, analysts can gain a clear sense of a company’s mission, direction and prospects. But good analysts, recognizing the importance of getting other perspectives on a company, also will talk to a firm’s customers, suppliers, competitors, bankers, auditors and even recent retirees.
• Insights – It might seem that an analyst could form an opinion of a businessby looking at the company’s books and talking to its key players and observers. However, analysts like to see things with their own eyes, which is whey they spend many hours in the field, walking factory floors, examining raw materials and scrutinizing product placement on retailers’ shelves. By combining the numbers, the people and the fieldwork, analysts can form a complete picture of a company to determine if it’s a promising investment opportunity. And, as things change over time, analysts must constantly revisit their earlier subjects to see if they’re still fund-worthy. Working for You
As you might expect, it takes years of training, study and experience to become a portfolio manager or an analyst. But all this expertise is yours every single time you invest in a mutual fund. And that’s a pretty good deal.
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