Fund manager is the key person when it comes to Mutual funds; fund managers decide the asset allocation, market cap allocation, entry & exit into stocks & all the other major decisions involving the strategy & its implementation.
Broadly, Fund managers can be categorized into the following types as per the strategy they follow:
The managers using this style have a lot of emphasis on the current and future Corporate Earnings. They are even prepared to pay a premium on securities having strong growth potential. The growth stocks are generally the cash-cows and are expected to be sold at prices in the northern direction.
Managers following such a response will thrive on bargaining situations and offers. They are on the hunt for securities that are undervalued about their expected returns. Securities could be undervalued even because they do not hold preference with the investors for multiple reasons.
Growth at a reasonable price :
The Growth at Reasonable Price style will use a blend of Growth and Value investing for constructing the portfolio. This portfolio will usually include a restricted number of securities that are showing consistent performance. The sector constituents of such portfolios could be slightly different from that of the benchmark index to take advantage of growth prospects from these selected sectors since their ability can be maximized under specific conditions.
Fundamental Style :
This is the basic and one of the most defensive styles which aim to match the returns of the benchmark index by replicating its sector breakdown and capitalization. The managers will strive to add value to the existing portfolio. Such styles are generally adopted by mutual funds to maintain a cautious approach since many retail investors with limited investments expect a necessary return on their overall investment.
Quantitative Style :
The managers using such a style rely on computer-based models that track the trends of price and profitability for identification of securities offering higher than market returns. Only necessary data and objective criteria of protection are taken into consideration, and no quantitative analysis of the issuer companies or its sectors are carried out.
Risk Factor Control :
This style is generally adopted for managing fixed-income securities which take into account all elements of risk such as:
- Duration of the portfolio compared with the benchmark index
- The overall interest rate structure
- Breakdown of the deposits by the category of the issuer and so on
Bottom Up style :
The selection of the securities is based on the analysis of individual stocks with less emphasis on the significance of economic and market cycles. The investor will concentrate their efforts on a specific company instead of the overall industry or the economy. The approach is the company exceeding expectations despite the sector or the economy not doing well.
Top Down Style :
This approach of investment involves considering the overall condition of the economy and then further breaking down various components into minute details. Subsequently, analysts examine different industrial sectors for the selection of those scripts which are expected to outperform the market.