Portfolio Management Strategies refer to the approaches that are applied for the

efficient portfolio management in order to generate the highest possible returns at

lowest possible risks. There are two basic approaches for portfolio management
including Active Portfolio Management Strategy and Passive Portfolio Management
Strategy.
Active Portfolio Management Strategy
The Active portfolio management relies on the fact that particular style of analysis or
management can generate returns that can beat the market. It involves higher than
average costs and it stresses on taking advantage of market inefficiencies. It is
implemented by the advices of analysts and managers who analyze and evaluate
market for the presence of inefficiencies.
Active Portfolio Management Strategy refers to a portfolio management strategy that
involves making precise investments for outperforming an investment benchmark
index. The portfolio manager that follows the active management strategy exploits
the market inefficiencies by buying undervalued securities or by short selling
overvalued securities. Any of these procedures can be used alone or in combination.
Active portfolio managers may create less volatility (or risk) than the benchmark
index depending on the targets of the specific hedge fund or mutual fund or
investment portfolio. The risk reduction is considered as goal of creating an
investment return larger than the benchmark. They use large number of factors and
strategies for constructing their portfolio.
Benefits of Active Management
The active portfolio management strategy allows the portfolio managers to select a
variety of investments rather than investing in the market as a whole. There may be
different kinds of motivations for the investors to follow active management strategy.
In order to generate profits, the investors consider that some market segments are
less efficient than others.
Portfolio Manager may manage the volatility or risks of market by investing in less-
risky and high-quality companies instead of investing in market as a whole.
Investors may take additional risk for achieving higher-than-market returns.
Those investments which are not vastly correlated to the market function as
portfolio diversifier and decrease the portfolio volatility as a whole.
Investors may follow a strategy for avoiding certain industries in comparison to the
market as a whole.
Investors that follow actively-managed fund are more aligned for achieving their
specific investment goals.
Drawbacks of Active Management
There are chances of bad investment choices to be made by fund manager
Fund Manager may follow an unsafe theory for the management of the portfolio
The costs related to the active management are higher in comparison to passive
management in case of lack of frequent trading
Fund managers should actively evaluate the funds prospectus before investing in
an actively-managed mutual fund because most of the actively-managed large and
mid-cap stock funds fail to beat or outperform their passively managed counterparts.
Higher transaction costs results due to frequent trading with active fund
management strategies that reduces the funds return.
The short-term capital gains due to frequent trading have an unfavourable income
tax impact.

The active management approach of the portfolio management involves the
following styles of the stock selection.
Top-down Approach: In this approach, managers observe the market as a whole
and decide about the industries and sectors that are expected to perform well in the
ongoing economic cycle. After the decision is made on the sectors, the specific stocks
are selected on the basis of companies that are expected to perform well in that
particular sector.
Bottom-up: In this approach, the market conditions and expected trends are
ignored and the evaluations of the companies are based on the strength of their
product pipeline, financial statements, or any other criteria. It stresses the fact that
strong companies perform well irrespective of the prevailing market or economic
conditions.


Passive Portfolio Management Strategy
Passive asset management relies on the fact that markets are efficient and it is not
possible to beat the market returns regularly over time and best returns are obtained
from the low cost investments kept for the long term.
The passive management approach of the portfolio management involves the
following styles of the stock selection.
Efficient market theory: This theory relies on the fact that the information that
affects the markets is immediately available and processed by all investors. Thus,
such information is always considered in evaluation of the market prices. The
portfolio managers who follows this theory, firmly believes that market averages
cannot be beaten consistently.
Indexing: According to this theory, the index funds are used for taking the
advantages of efficient market theory and for creating a portfolio that impersonate a
specific index. The index funds can offer benefits over the actively managed funds
because they have lower than average expense ratios and transaction costs.
Apart from Active and Passive Portfolio Management Strategies, there are three
more kinds of portfolios including Patient Portfolio, Aggressive Portfolio and
Conservative Portfolio.
Patient Portfolio: This type of portfolio involves making investments in well-
known stocks. The investors buy and hold stocks for longer periods. In this portfolio,
the majority of the stocks represent companies that have classic growth and those
expected to generate higher earnings on a regular basis irrespective of financial
conditions.
Aggressive Portfolio: This type of portfolio involves making investments in
expensive stocks that provide good returns and big rewards along with carrying big
risks. This portfolio is a collection of stocks of companies of different sizes that are
rapidly growing and expected to generate rapid annual earnings growth over the next
few years.
Conservative Portfolio: This type of portfolio involves the collection of stocks
after carefully observing the market returns, earnings growth and consistent
dividend history.
Advantages of passive portfolio management strategy
Passive portfolio management strategy provides various advantages as mentioned
below.
Low cost: Passive investment strategy incurs low costs as compared to active
investment counterparts. It provides meaningful and specific incremental advantage.
On other hand, an active manager is required to add enough value for beating the
cost disadvantage.
Reduced uncertainty of decision errors: By making investments, investors are
exposed to market risks and passive investment strategy reduces the uncertainty of
decision errors. In case of active management, the pressure of achieving the returns
that beats the market, may lead to the extra risk for making the wrong investments.
Style consistency: Indexing enables the investors to control their overall allocation
by selecting the appropriate indexes.
Tax efficiency: Indexing is considered as more tax efficient especially in cases of
larger-cap indexes that involve less trading and which are fairly stable.

Role of portfolio manager
A portfolio manager plays a pivotal role in deciding the best investment plan for an
individual as per his income, age as well as ability to undertake risks. Investment is
essential for every earning individual. One must keep aside some amount of his/her income
for tough times. Unavoidable circumstances might arise anytime and one needs to have
sufficient funds to overcome the same.
A portfolio manager is responsible for making an individual aware of the various
investment tools available in the market and benefits associated with each plan. Make an
individual realize why he actually needs to invest and which plan would be the best for him.

A portfolio manager is responsible for designing customized investment solutions for
the clients. No two individuals can have the same financial needs. It is essential for the
portfolio manager to first analyze the background of his client. Know an individuals earnings
and his capacity to invest. Sit with your client and understand his financial needs and
requirement.
Reporting
Fund managers must ensure their funds' reporting requirements are met. Funds are designed with different
strategies and objectives and have different risks, policies and expenses. These details are important to
clients and regulators and should be clearly outlined in a prospectus. Fund managers are responsible for
ensuring that prospectuses and other documents are completed, filed and distributed as regulations require.
Compliance
Fund managers must also ensure their funds operate in accordance with regulations outlined by authorities,
such as the Securities and Exchange Commission. Regulations can cover aspects of the fund's business
from getting clients to handling redemptions. For example, HedgeCo explains that hedge funds are not
allowed to use general solicitation or general advertisement to attract new clients. If questions, concerns or
problems arise, a fund manager may have to answer to the fund's directors, investors or even regulators and
legislators.
Growth and Performance
People turn to funds because they want growth. Fund managers can only deliver it by putting clients' money
to work, so they have to decide where to invest. Their choices are shaped not only by the rules and
regulations applicable to the fund, but also by clients' expectations. Fund managers are judged by how well
their fund performs. At a minimum, they need to deliver growth that exceeds interest rates and the rate of
inflation to justify the risks of investing.
Wealth Protection
Fund managers have a responsibility to protect investors' money. Prudent investors are aware that funds
must take some risks to deliver growth but they do not expect reckless behavior. Therefore, fund managers'
choices to buy or sell assets are preceded by a lot of research and due diligence, which can involve
investigating companies or assets, attending industry events and employing risk management techniques to
assess investments. Fund managers also address risk by ensuring asset portfolios are sufficiently diversified.
Hiring, Outsourcing and Oversight
With so many responsibilities, fund managers need help. Many hire and oversee staffs and some outsource
certain duties to other professionals and firms.
Ethical issue in marketing
A company must have ethical marketing policies to guide
their pricing, advertising, research, and competitive
strategies.
KEY POINTS
Each party in a marketing transaction brings expectations regarding how
the business relationship will exist. For example, if a consumer wishes to
make a purchase from a retailer, their expectations include wanting to be
treated fairly by the salesperson and wanting to pay a reasonable price.
Ethical marketing decisions and efforts should meet and suit the needs of
customers, suppliers, and business partners. Unethical behavior such as
price wars, selective advertising, and deceptive marketing can
negatively impact a company's relationships.
Recent trends show that consumers prefer ethical companies. As a
result ethicsitself is a selling point or a component of a corporate image.
TERMS
puffery
A legal term that refers to promotional statements and claims that
express subjective rather than objective views, which no "reasonable
person" would take literally. An example would be "Red Bull Gives You
Wings. "
propagation
The dissemination of something to a larger area or greater number.
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Ethical Issues in Marketing
Ethical problems in marketing stem from conflicts and disagreements. Each
party in a marketing transaction brings a set of expectations regarding how
the business relationship will exist and how transactions should be
conducted. Each facet of marketing has ethical danger points as discussed
below.
Market Research
Some ethical problems in market research are the invasion of privacy and
stereotyping. The latter occurs because any analysis of real populations
needs to make approximations and place individuals into groups. However,
if conducted irresponsibly, stereotyping can lead to a variety of ethically
undesirable results.
Market Audience
Selective marketing is used to discourage demand from so-called
undesirable market sectors or disenfranchise them altogether. Examples of
unethical market exclusion are past industry attitudes to the gay, ethnic
minority, and plus-size markets.
Another ethical issue relates to vulnerable audiences in emerging markets
in developing countries, as the public there may not be sufficiently aware of
skilled marketing ploys.
Ethics in Advertising and Promotion
In the 1940s and 1950s, tobacco used to be advertised as promoting health.
Today an advertiser who fails to tell the truth offends against morality in
addition to the law. However the law permits puffery (a legal term). The
difference between mere puffery and fraud is a slippery slope.
Sexual innuendo is a mainstay of advertising content, and yet is also
regarded as a form of sexual harassment. Violence is an issue especially for
children's advertising and advertising likely to be seen by children.
The advertising of certain products may strongly offend some people while
being of interest to others. Examples include: feminine hygiene products as
well as hemorrhoid and constipation medication. The advertising of
condoms has become acceptable in the interests of AIDS-prevention, but
are nevertheless seen by some as promoting promiscuity.
Through negative advertising techniques, the advertiser highlights the
disadvantages of competitor products rather than the advantages of their
own. These methods are especially used in politics.
Delivery Channels
Direct marketing is the most controversial of advertising channels,
particularly when approaches are unsolicited. TV commercials and direct
mail are common examples. Electronic spam and telemarketing push the
borders of ethics and legality more strongly.
Deceptive Advertising and Ethics
Deceptive marketing is not specific to one target market, and can
sometimes go unnoticed by the public. There are several ways in which
deceptive marketing can be presented to consumers; one of these methods
is accomplished through the use of humor. Humor provides an escape or
relief from some kind of human constraint, and some advertisers intend to
take advantage of this by deceptively advertising a product that can
potentially alleviate that constraint through humor.
Anti-competitive Practices
Bait and switch is a form of fraud where customers are "baited" by
advertising for a product or service at a low price; second, the customers
discover that the advertised good is not available and are "switched" to a
costlier product.
Planned obsolescence is a policy of designing a product with a limited
useful life, so it will become unfashionable or no longer functional after a
certain period of time and put the consumer under pressure to purchase
again.
A pyramid scheme is a non-sustainable business model that involves
promising participants payment or services, primarily for enrolling other
people into the scheme, rather than supplying any real investment or sale of
products or services to the public .

Pyramid Scheme
This business practice relies on getting the initial investor or "captain" to enroll others for a fee to them who in
turn will also enroll others in order to get paid.
Pricing Ethics
Bid rigging is a form of fraud in which a commercial contract is promised to
one party, although for the sake of appearance several other parties also
present a bid.
Predatory pricing is the practice of selling a product or service at a very low
price, intending to drive competitors out of the market, or create barriers to
entry for potential new competitors.
Using Ethics as a Marketing Tactic
Major corporations fear the damage to their image associated with press
revelations of unethical practices. Marketers have been quick to perceive
the market's preference for ethical companies, often moving faster to take
advantage of this shift in consumer taste. This results in the propagation of
ethics itself as a selling point or a component of a corporate image.
Marketing ethics, regardless of the product offered or the market targeted,
sets the guidelines for which good marketing is practiced. To market
ethically and effectively one should be reminded that all
marketing decisions and efforts are necessary to meet and suit the needs of
customers, suppliers, and business partners. The mindset of many
companies is that they are concerned for the population and
the environment in which they due business. They feel that they have a
social responsibility to people, places and things in their sphere of influence.