Keeping track of your investment portfolio requires real commitment, considerable knowledge, dedicated time, and long-term objectives. You may not be able to make the right investment decisions, which is essential for managing a portfolio. With a discretionary portfolio management service, you get the assistance of an expert who understands your long-term financial goals, whether for your business, family, or retirement, and constructs a custom portfolio to realize your dreams.
An investment management team is qualified and experienced to design and nurture your portfolio in keeping with your financial objectives and appetite for risk. For it, they conduct a careful study of the stock market and periodical analysis of the portfolio on your behalf. They also have access to recent market analysis, research, and investment themes and have the expertise to respond to new opportunities and events.
What is discretionary portfolio management, and how does it work?
When an investment management team makes buying and selling decisions for clients’ portfolios, it becomes a discretionary portfolio management service. The asset or investment manager uses their discretion on behalf of the client to invest in asset classes. The discretionary portfolio management services are mostly offered by investment companies and banks, having a qualified and experienced team of professionals.
Key strategic approaches to portfolio management
An investment bank can provide a custom solution using four strategic approaches after assessing your risk profile.
1: Strategic Asset Allocation (SAA)
As a long-term portfolio management strategy, Strategic Asset Allocation (SAA) allows the investor to select a mix of asset classes and rebalance it regularly to keep a fixed proportion of assets. When there are unrealized losses or profits in the asset classes, the asset allocation weights deviate from the SAA weights, which asks for rebalancing.
The asset classes in the SAA deviate from targets as they perform at different levels. Hence, the investment bank or investor has to realign it periodically to maintain the original allocation.
With an SAA strategy, you can have a diverse portfolio, balancing the risk and returns to achieve your financial goal. The asset allocation strategy includes equities, money market securities, bonds, and cash to construct a balanced portfolio with fixed targets. However, the target allocations depend on factors like the investment time frame, investor’s risk tolerance, and financial objectives.
2: Tactical Asset Allocation
Shifting the asset-class allocations in a portfolio to make use of the market trends or deviation in market pricing using an ‘active management portfolio strategy’ is called tactical asset allocation. The portfolio managers can create additional value with this strategy by utilizing the dynamic market conditions.
With tactical asset allocation, you can increase returns by shifting asset class allocations to strong performers by taking advantage of macroeconomic events. A typical tactical shift is between 5-10 percent. In tactical asset collection, asset allocation is adjusted, making use of short-term market fluctuations until they disappear.
3: Market Positioning
Using this strategy, investment managers build your investment portfolio by studying varying credit and interest rates and identifying growing trends and investment opportunities across market segments, regions, and sectors.
4: Security Selection
It is a strategy of determining and selecting the most efficient financial securities to be included in a particular investment portfolio that can give returns during a market upswing and loss during a market downturn.
To conclude, by utilizing a discretionary portfolio management service, you need not worry about how your investments perform, as each portfolio is separately managed. The experts understand the investment strategy and financial markets better.