What is Portfolio Manager?

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A portfolio manager is a person or group of people responsible for investing a mutual, exchange traded or closed-end fund's assets, implementing its investment strategy, and managing day-to-day portfolio trading. A portfolio manager is one of the most important factors to consider when looking at fund investing. Portfolio management can be active or passive, and historical performance records indicate that only a minority of active fund managers consistently beat the market.

Definition

A portfolio manager is an individual or group responsible for managing the assets of investment funds such as mutual funds, ETFs, or closed-end funds. They implement investment strategies and manage daily portfolio trading. Portfolio managers are a crucial factor in fund investment. Portfolio management can be active or passive, with historical data showing that only a few active managers consistently outperform the market.

Origin

The concept of portfolio management originated in the early 20th century as financial markets became more complex and investment products diversified. The development of modern portfolio theory in the 1950s further advanced this field.

Categories and Features

Portfolio management is divided into active and passive management. Active management involves fund managers actively selecting investments to outperform the market, while passive management typically tracks market indices. The advantage of active management is the potential for high returns, but it comes with higher risks and fees; passive management is known for its low cost and stability.

Case Studies

A classic example is Peter Lynch, who managed the Fidelity Magellan Fund from 1977 to 1990, achieving an average annual return of 29%. Another example is Warren Buffett, who successfully implemented a long-term investment strategy through Berkshire Hathaway, becoming one of the world's most successful investors.

Common Issues

Investors often misunderstand that active management always leads to higher returns, but many active funds fail to consistently outperform the market. Additionally, investors should be aware of the impact of management fees on long-term returns.

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Liquidity Trap

A liquidity trap is an adverse economic situation that can occur when consumers and investors hoard cash rather than spending or investing it even when interest rates are low, stymying efforts by economic policymakers to stimulate economic growth.The term was first used by economist John Maynard Keynes, who defined a liquidity trap as a condition that can occur when interest rates fall so low that most people prefer to let cash sit rather than put money into bonds and other debt instruments. The effect, Keynes said, is to leave monetary policymakers powerless to stimulate growth by increasing the money supply or lowering the interest rate further.A liquidity trap may develop when consumers and investors keep their cash in checking and savings accounts because they believe interest rates will soon rise. That would make bond prices fall, and make them a less attractive option.Since Keynes' day, the term has been used more broadly to describe a condition of slow economic growth caused by widespread cash hoarding due to concern about a negative event that may be coming.

Liquidity Crisis

A liquidity crisis is a financial situation characterized by a lack of cash or easily-convertible-to-cash assets on hand across many businesses or financial institutions simultaneously.In a liquidity crisis, liquidity problems at individual institutions lead to an acute increase in demand and decrease in supply of liquidity, and the resulting lack of available liquidity can lead to widespread defaults and even bankruptcies.

Liquidity Crisis

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Liquidity Event

A liquidity event is an acquisition, merger, initial public offering (IPO), or other action that allows founders and early investors in a company to cash out some or all of their ownership shares.A liquidity event is considered an exit strategy for an illiquid investment or equity with little or no market to trade on. Founders of a firm push toward a liquidity event, and investors like venture capital (VC) firms, angel investors, or private equity firms expect one within a reasonable amount of time after initially investing capital.

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Liquid Alternatives

Liquid alternative investments (or liquid alts) are mutual funds or exchange-traded funds (ETFs) that aim to provide investors with diversification and downside protection through exposure to alternative investment strategies. These products' selling point is that they are liquid, meaning that they can be bought and sold daily, unlike traditional alternatives which offer monthly or quarterly liquidity. They come with lower minimum investments than the typical hedge fund, and investors don't have to pass net-worth or income requirements to invest. Critics argue that the liquidity of so-called liquid alts will not hold up in more trying market conditions; most of the capital invested in liquid alts has entered the market during the post-financial crisis bull market. Critics also contend that the fees for liquid alternatives are too high. For proponents, though, liquid alts are a valuable innovation because they make the strategies employed by hedge funds accessible to retail investors.

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Zero-Investment Portfolio

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