What are the different types of portfolio management?

If you’ve decided to acquire expert advice from a specialist in investments, you may be considering the question ‘what are the different types of portfolio management open to investors?’ Portfolio management refers to the decision-making regarding how money is invested. The concept involves policies and strategies that match investments to an investor’s risk tolerance, objectives and asset allocation needs. Every portfolio management strategy seeks to balance performance and risk. Read on for a closer look at the four types of portfolio management available: active, passive, discretionary and non-discretionary.

What is active portfolio management?

This type of portfolio management demands high-level expertise of markets. Portfolio managers implementing active strategies primarily aim to generate greater market returns than the current market. This strategy is referred to as ‘active’ because it requires continuous evaluation of the market to purchase assets at times when they’re undervalued and to sell them when they’re exceeding the norm. This strategy also needs quantitative analysis of the financial market, a high degree of diversification and a solid knowledge of business cycles.

The greatest benefit of active strategies is their potential for generating impressive returns. This type of strategy is also flexible allowing fund managers to adjust it whenever it is necessary.

What is passive portfolio management?

Passive portfolio management has no interest in beating the current financial market. Those who adopt this strategy believe that fundamentals will always be seen in the value of an underlying asset. Those investing who seek to minimise risk typically prefer passive investment strategies. Among the simplest ways to deploy a passive investment strategy is by investing in an index fund that tracking a market index. Low-cost, these strategies are also associated with strong gains in the long term.

What is discretionary portfolio management?

Discretionary portfolio management gives the fund manager total control over the investment decisions of their client. The discretionary fund manager makes all decisions regarding buying or selling on behalf of their client and uses the specific strategy they deem to be the best. This type of specialist strategy can only be provided by certified professionals who possess extensive experience and knowledge in investments. Clients must have the utmost confidence in their advisor and feel safe in the knowledge that their personal investment decisions are in the safe hands of an expert.

What is non-discretionary portfolio management?

A non-discretionary approach to portfolio management is, in simple terms, a financial advisor. The advisor will give their client a list of pros and cons regarding making an investment in a particular strategy or market. However, they will not implement the process without the express permission of their client. This is a key difference between using non-discretionary and discretionary portfolio management services.

Are you looking for experts in portfolio management in Shropshire and Chester?

Whether you need passive, active, discretionary or non-discretionary portfolio management, we can help. We construct portfolios that balance risk and return according to our client’s financial requirements and future goals. If you’d like to explore the question ‘what are the different types of portfolio management?’ with our team at Hartey Wealth Management, get in touch today.


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