Asset ManagementAsset Management-Portfolio Manager--Portfolio Manager-

Tetsuya Hiranothirano@umich.edu

October 9, 2005Tozzi Finance Center

Today’s Agenda

• Portfolio Management Overview– What is Portfolio Manager?– Career Path for a Portfolio Manager – Skills

• Investment Decision Making Style– Investment Style– Top down / Bottom up– Typical day

• Main Players• Books

What is Portfolio Manager?

• Portfolio managers make investment decisions for a portfolio of assets, and expected to produce excess return to benchmark (ex. S&P 500)

• Portfolio Managers decide which stocks and what % they should buy for their portfolio

– Buy-side analysts help portfolio managers to identify which stocks are good, but do not recommend what %

• Portfolio managers need to adjust the portfolio to control portfolio risk (ex. BARRA analysis)

– To control risk, P.M. might need to buy stocks that they don’t like.

Career Path to Portfolio Manager

It is very difficult for MBAs to directly get a Portfolio manager position. We need a bridge.

Typical Career Path will be, – People spend several years as a research analyst – Firms rotate analysts to several sectors every a couple of

years – Some firms assign analysts to manage sector fund(s)– Finally, good stock pickers are promoted to Portfolio managers

Skills

• Skills mentioned during Fidelity campus recruiting session– Integrity– Curiosity: Keep asking “why”– Creative/Independent thinker: Can be contrarian?– Individual/Teamwork achievement– Entrepreneur– Communication– Passion in financial market

P.M. involves judgment..

Buy/Sell-sidesEconomistsStrategists

Buy-sideSell-sideAnalysts

Individual

Company

(earning

guidance etc.)

Portfolio Manager

MediaPaper, News, Magazines etc.

Own Experience(ex. I like eBay.Am I biased? )

Final Portfolio/Risk Control

Portfolio managers always judge information; Important? Correct? Biased?

How do P.M.s build portfolio?• Top down approach

– General to specific– Start with the macroeconomic view, then identify which sectors

perform better, and finally choose stocks• Portfolio managers decide

– First, sector allocation – Second, individual stocks weights%– Finally, adjust portfolio risk

• Bottom up approach– Start with Stock fundamentals

• Portfolio managers decide– First, individual stocks and weight%– Second, build initial portfolio– Finally, adjust portfolio risk

Investment Style

• There is a range of different styles– Growth, Value, Small/Mid cap., Indexed, market

neutral, etc.

Large

Mid

Small

Blend GrowthValueValue Blend Growth

– Very important to understand which investment style your target firm(s) employ

– Firms/Funds have their own investment style, categories. These styles are very consistent.

Investment Style (Cont.)• Growth Stock

– 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

• Value Stock– Stock of a company which is not expanding rapidly but has

excellent fundamentals. Stock is considered undervalued, but expected to appreciate in near future.

Large

Mid

Small

Value Blend Growth

Large

Mid

Small

Value Blend Growth

• Large: >$5 billion

• Medium: $1.5 million - $5 billion

• Small: $250 million - $1.5 billion

Typical Day

• Working style varies firm by firm. (Below is very simplified schedule)

• Earning release seasons are very tough (ex. 5 earnings on one day. You might need to follow all of them.)

6:00 Wake up & check NY market7:30-45 Arrive at office / Review US market & Economic indicators

8:00 Morning meeting with in-house research analysts9:00 Maket Open

10-12:00 Meeting with Corporate IR/ Sell-side analysts12:00 Lunch

13-17:00Meeting with Corporate IR/ Sell-side analystsMaking financial models/Reseach individual companiesPortfolio review with teammembers

17-20:00 Writing memo/reports to my teammembersPrepare for tomorrow's meetins

Main PlayersCompany name Asset under management

billion USD1 Fidelity Investments 1,1392 State Street Global 1,1063 Barclays Global 1,0704 Vangard Group 7255 Deutsche Asset Management 7156 Mellon Financial 6177 JP Morgan Fleming 5598 Capital Research 5329 Citigroup Asset Management 521

10 Merrill Lynch 50011 Nothern Trust Global 47912 Alliance Capital 47513 UBS Global Asset Management 45614 AIG Global Investments 44115 Prudential Financial 432

Source: Pension and Investments as of Jan. 2004

Recommended Books

• Portfolio Manager 101– Peter Lynch

• One Up on Wall Street• Beating the Street• Learn to Earn

– Jim Rogers• Investment Biker• Hot Commodities• Adventure Capitalist

• More recommended books http://webuser.bus.umich.edu/Organizations/investmentclub/Roadmap.doc