New to investing? Here’s where to start with a portfolio manager

Choosing the right investment portfolio manager can often mean the difference between success and potential failure in meeting your long-term financial goals. However, some people may also prefer to handle their investments and assets on their own. 

The question is: With so many investment portfolio managers out there, how do you know what makes a good one? Euronews Business explores what qualifications they should have, what questions need to be asked – and how a portfolio should be put together.

Why is it important to have a portfolio manager?

Drayton D’Silva, chief executive officer and chief investment officer at Tower Hills Capital, says the interaction between your investments is as important as the selection of your investments.

“The goal for a portfolio should be a sufficiently diversified portfolio that optimises your risk and returns for your relevant time period, while also meeting your ongoing cash/liquidity needs.”

Mihail Dobrinov, the founder and chief information officer of Trimon Capital, says that a well-constructed portfolio should meet certain risk parameters, so that it behaves in a more or less predictable way.

“Because of the way portfolio mathematics work, individual investors may not always be able to determine and attain the optimal asset allocation,” he explains. “Selecting the right stocks, bonds, exchange-traded funds (ETFs), or mutual funds requires certain knowledge, skill, and access to data. 

“A professional portfolio manager will be able to employ special software tools to optimise the portfolio’s risk and return according to an investor’s goals. Moreover, managing an investment portfolio is a dynamic interactive process.”

Dobrinov also notes that, with return expectations, volatility and correlations among assets migrate over time, the portfolio construction process should be able to take this into account and adjust accordingly. “Otherwise, a portfolio may experience style and asset allocation drifts that may make it inappropriate for the investor. 

“Monitoring and rebalancing portfolios may be a time-consuming and complex task for many investors. Lastly, each portfolio needs to be compared to its appropriate relative benchmark in order to assess its performance. Here again, access to the right information, data and tools are crucial to the correct performance evaluation,” Dobrinov added.

Shawn Carpenter, the founder and CEO of Stock Alarm, told Euronews: “Investing is not just about picking some stocks. The market is constantly changing and most of us don’t have time to keep up with all the changes.

“This is where a fund manager comes in – they will monitor your investments, help you work smarter and adjust your strategy when needed. Think of them as your personal financial guide.”

What should you look for when selecting a portfolio manager?

With so many portfolio managers out there now, how do you go about choosing one? Should more value be given to experience, or to someone who fits the kind of personality or values you want your portfolio manager to have? The right answer could be a perfect balance of both. 

Jacqui Smith, portfolio manager at Reynders, McVeigh Capital Management, says: “Aside from the professional credentials which should be a given, it’s important to look for someone who is a good listener and understands what you care about, what motivates you, what the goal of your money is, and what makes you feel values are aligned.  

“This is a person’s life savings that they have entrusted you with, so consideration of capital preservation is extremely important when selecting a manager.  One way that you can gauge this when interviewing a portfolio manager is by asking for their upside -downside capture, which shows how their performance compares to their benchmark during periods of positive and negative returns in the market. 

“The goal is to find a manager who typically loses less when the market is down and outperforms when the market is strong. 

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“Although we find that sustainable portfolios tend to be less volatile, if there are periods of volatility or negative returns in your portfolio, it does help to know that your investments are values aligned and are not doing harm and are making a positive impact on society. 

“We also find that clients like to hear stories behind the stocks and why we selected them, which engages them in the process and brings their portfolio to life.”

George McNeil, chartered financial planner at DGS Chartered Financial Planners, says: “Other than someone you quite like on a personal level as you will be talking to them for decades, it is experience, track record, and qualifications. 

“Make sure the person has some level of experience, see what their portfolios look like and how they have performed, and make absolutely sure they are properly qualified and you have protections if anything were to go wrong.”

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Portfolio managers usually need to have one or more certifications, such as Certified Financial Planner (CFP), Chartered Financial Analyst (CFA), Certified Investment Management Analyst (CIMA) and Financial Risk Management (FRM). They also need to have a bachelor’s and master’s degree in most cases.

In Europe, they also need to meet requirements set out by the European Securities and Markets Authority (ESMA) while, in the UK, they would need to adhere by the Financial Conduct Authority (FCA)’s rules – and in the US, the Securities and Exchange Commission (SEC)’s. In the US, portfolio managers may also need to have the granting of a licence from the Financial Industry Regulatory Authority (FINRA).

Some skills a portfolio manager would ideally need to have include risk management, financial analysis, decision-making, communication and strategic thinking, among others.

Signs that suggest you need to change your portfolio manager

Sometimes, even after having found and worked with a portfolio manager for several years, the returns may not be satisfactory. There may also be a clash of investment management styles, as well as other issues.

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In these cases, should you switch your portfolio manager? 

Faris Khatib, CEO at Ideal Tax says: “Signs you should switch to a new portfolio manager would be their steady underperformance accompanied by stagnation in strategy. Lack of proactive communication can also portray a red flag since they may contact you only when something is wrong. 

“It could go further in failing to explain the reasoning behind certain decisions or suggestions. If your portfolio manager shows these signs then it’s time to rethink the partnership.”

McNeil explains: “While we cannot control the global economy, if performance is consistently poor when the overarching economic direction is up then I would suggest calling a meeting with your portfolio manager to discuss this and see if there are explanations. 

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“The other sign would be radio silence – this is supposed to be a long-term relationship between you and them and you are trusting them with your life savings (most likely) so you should be communicating properly with them.”

Smith also pointed out it may be time to change your portfolio manager if you feel that he or she is not listening to you or taking your risk tolerance and investment time horizon into consideration when structuring the asset allocation for your portfolio. 

“It is important to understand your client and what they care about so, if you feel as though your PM has not tried to get to know you better, it may be time to consider looking elsewhere. An example of this would be if you are a lung cancer survivor and you have tobacco company holdings.”

Dobrinov believes a considerable amount of portfolio drift when it comes to style and asset allocation could be a sign that a new portfolio manager is required. According to him, erratic trading and high turnover could also mean a lack of discipline and conviction. 

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Similarly, consistently choosing higher-cost ETFs and funds, even though there are other very similar options which may be cheaper, could be a warning sign. 

Also, watch out for vague and hidden fees. The best portfolio managers clearly disclose their fee structure so you know exactly what you pay.

How should a portfolio be constructed?

There are a variety of ways a portfolio can be constructed, depending on an investor’s needs, age, amount of capital, investing experience and more. 

Steven Kibbel, certified financial planner at Kibbel Financial Planning, said: “To balance risk and return, a well-constructed portfolio is usually diversified among many asset types, such as stocks, bonds, real estate, etc. It needs to represent your financial objectives, time horizon for investments, and risk tolerance. 

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“Younger investors, for instance, would favour portfolios that are more heavily weighted toward stocks for growth, whereas those who are getting close to retirement might choose a more cautious, income-focused allocation.”

McNeil said: “While there are different approaches and philosophies, fundamentally it should be constructed in a way that is appropriate to the risk appetite of the client. If a client is young, with a high risk tolerance, and a good level of knowledge then you can take on a little more risk than an older client with limited knowledge.

“Furthermore, asset allocation drives the majority of results over time (reports suggest 80%). This is ‘spreading’ your money across various assets and across various geographies so that you share in the returns of the global economy. 

“While portfolio managers can take some level of position on where they think might do best in time, fundamentally we need a spread of regions (like the US, UK, EU) and asset classes (equities, property, fixed income etc).

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“Lastly, a client should be able to understand a portfolio – it should be sensible and well understood otherwise it has failed,” McNeil added.

Disclaimer: This information does not constitute financial advice, always do your own research on top to ensure it’s right for your specific circumstances. Also remember, we are a journalistic website and aim to provide the best guides, tips and advice from experts. If you rely on the information on this page, then you do so entirely at your own risk.