What is a portfolio manager?

Portfolio managers manage investment portfolios for individual and institutional clients, determining how much money to allocate to various investments. A portfolio manager may manage a mutual fund, exchange-traded fund or hedge fund, but they may also manage smaller accounts for individual clients.

Here’s what else you should know about the role of a portfolio manager, including the skills required and the path to become one.

What is a portfolio manager?

A portfolio manager manages investment portfolios of securities such as stocks or bonds. The role can vary depending on the size of the portfolio, its underlying strategy and the type of client.

Portfolio managers may manage funds, such as mutual or hedge funds, that individual and institutional clients invest in, and they may also work with individual clients to manage their overall portfolio using various funds.

Understanding the role of a portfolio manager

Portfolio managers are typically responsible for deciding which investments to buy and sell within a portfolio and how much to allocate to different securities. They have a significant impact on the portfolio’s performance, so the role is typically held by someone with investing experience.

Passive vs. active portfolio management

Investors have a choice of whether to pursue an active or passive portfolio strategy. Passive strategies attempt to match the performance of certain market indexes such as the S&P 500 by buying and selling securities based on what’s held in the underlying index. Portfolio managers aren’t exercising their own personal views or judgment when buying and selling securities in passive strategies, they’re simply tracking the index.

Active strategies attempt to outperform market indexes by purchasing securities that the portfolio manager thinks will outperform and avoiding securities that will underperform. Portfolio managers of active strategies may be supported by a team of research analysts who help them identify attractive securities to buy or sell. Turnover tends to be higher in active strategies, compared to passive funds, and portfolio managers can be extremely well compensated if their funds outperform.

Skills and qualifications for portfolio managers

Portfolio managers need a variety of different skills to be successful. Most portfolio managers will have strong backgrounds in finance and accounting, but will also need strong communication skills in order to meet with clients and discuss investment ideas with research analysts. An understanding of psychology and human behavior is also beneficial.

Many portfolio managers hold the Chartered Financial Analyst (CFA) designation, which involves passing three comprehensive exams that cover topics such as statistics, accounting, economics, derivatives and portfolio management, and also completing relevant work experience. On average, successful candidates report that they study for more than 300 hours for each exam.

How to become a portfolio manager

Portfolio managers typically have undergraduate degrees in business fields such as finance or accounting. If your undergraduate degree isn’t in business, an MBA may be necessary to get into the investment management industry. Many investment professionals also hold the CFA designation.

Portfolio managers often work in investment research prior to managing a portfolio. Research analysts may cover investments in general or focus on specific sectors or industries. A research analyst makes investment recommendations to portfolio managers, who then decide whether or not to include it in their portfolios.

Portfolio manager jobs tend to be highly competitive and may be concentrated in major financial hubs such as New York or Chicago.

Bottom line

Portfolio managers manage investment portfolios on behalf of individual and institutional clients. Portfolio managers of actively-managed funds attempt to outperform market averages by selecting the best securities for their portfolios.

Some financial advisors may also take on certain portfolio management duties. If you’re looking for a financial advisor in your area, check out Bankrate’s financial advisor matching tool.