# Understanding Portfolio Managers: Roles, Types, and Key Responsibilities

## What Is a Portfolio Manager?

The term portfolio manager refers to a financial professional who makes investment decisions for individual and/or institutional investors. Portfolio managers develop and implement [investment strategies](https://www.investopedia.com/terms/i/investmentstrategy.asp) and manage the day-to-day trading of a portfolio. These professionals manage assets for individual investors or institutional funds like [mutual funds](https://www.investopedia.com/mutual-funds-4427787). Investors should look at a portfolio manager's track record before investing.

There are two types of portfolio managers: active and passive. Active managers attempt to beat market averages, while passive managers mirror a specific index. Both types conduct research and create investment strategies. Portfolio managers need to be able to implement ideas, have strong communication skills, work independently, and understand risk management. Their top goal is to maximize returns and minimize losses. This requires conducting research, making adjustments through rebalancing, and clear communication with their clients.

### Key Takeaways

*   Portfolio managers are critical in shaping fund performance by creating and implementing investment strategies and managing day-to-day portfolio activities.
*   There are two primary types of portfolio management: active management, where managers aim to outperform the market with regular trades, and passive management, which mirrors a market index for more hands-off investing.
*   Essential skills for a successful portfolio manager include original investment ideation, strong research abilities, effective communication, and risk management.
*   Portfolio managers typically receive compensation through a combination of base salaries, commissions, bonuses, and potentially stock options, depending on their company's structure and their location.
*   Selecting a portfolio manager should involve evaluating their track record, fees, investment style, and philosophical approach to ensure alignment with your financial goals.  
    

## Key Responsibilities of a Portfolio Manager

As noted above, a portfolio manager is responsible for making investment decisions about the assets of individual investors and of various funds, including mutual funds, [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp), and closed-end funds, to name a few. Managers do this by creating and implementing various investment strategies, including buy and hold, value investing, indexing, diversification, income investing, small-cap, [contrarian investing](https://www.investopedia.com/articles/financial-theory/08/contrarian-investing.asp), active investing, and passive investing.

Portfolio managers build and manage [portfolios](https://www.investopedia.com/terms/p/portfolio.asp) based on their style. Their goal is to minimize losses and maximize returns. This requires conducting research, making adjustments to these portfolios through [rebalancing](https://www.investopedia.com/terms/r/rebalancing.asp) at regular intervals, and communicating with investors.

A portfolio manager holds great influence on a fund, whether it's a closed- or open-ended fund, hedge fund, [venture capital fund](https://www.investopedia.com/terms/v/vcfund.asp), or ETF. Decisions made by the portfolio manager will directly affect the fund's [returns](https://www.investopedia.com/terms/r/return.asp). Portfolio managers are usually seasoned investors, brokers, or traders with solid financial backgrounds and successful records.  

Portfolio managers may find themselves doing research as associates, directing investment teams at the mid-senior level, or working with individual clients for private wealth management firms. Senior managers commonly work with the [chief investment officers (CIOs)](https://www.investopedia.com/terms/c/chief-investment-officer.asp) of their funds. Depending on where they work, portfolio managers may be compensated with a base salary, [commissions](https://www.investopedia.com/terms/c/commission.asp), and bonuses.

> **Important**
>
> Portfolio management can be active or passive, and historical performance records indicate that only a minority of active fund managers consistently beat the market.

## Understanding Active and Passive Portfolio Management Styles

Portfolio managers usually fall into two categories: [active or passive](https://www.investopedia.com/ask/answers/040315/what-difference-between-passive-and-active-portfolio-management.asp). We highlight the difference between the two below

*   **Active Portfolio Managers:** A manager can take an active approach to investing, which means that they attempt to consistently beat average market returns. This is done using a hands-on approach, which involves buying and selling regularly. The active portfolio manager is very experienced, and their role is extremely important since their investment style directly results in the fund's returns. Potential investors should look at an active fund's [marketing](https://www.investopedia.com/terms/m/marketing.asp) material for more information on the investment approach.  
    
*   **Passive Portfolio Managers:** If a manager takes a passive approach, their investment strategy mirrors a specific [market index](https://www.investopedia.com/terms/m/marketindex.asp). Using that market index as a benchmark is extremely important since an investor should expect to see similar returns over the long term. As such, passive managers tend to take a hands-off approach. Their experience levels tend to be low to high.

> **Fast Fact**
>
> Most portfolio managers have at least an undergraduate degree in finance or another related field. They may also hold additional certifications, such as the Chartered Financial Analyst (CFA) and/or the Certified Financial Planner (CFP) designations. Many managers also get licensed by the Financial Industry Regulatory Authority (FINRA).

## Essential Qualities of a Successful Portfolio Manager

Regardless of the investment approach, all portfolio managers need to have very specific qualities [to be successful](https://www.investopedia.com/articles/financial-advisors/121515/portfolio-manager-career-path-qualifications.asp). The first is ideation. If the portfolio manager is active, then the ability to have original investment insight is paramount. If the manager takes a passive approach, the originating insight comes in the form of the market index they've decided to mirror. Passive managers must make smart choices about the index.

The way a portfolio manager conducts research is very important:

*   Active managers make a list of thousands of companies and pair it down to a list of a few hundred. The shortlist is then given to fund analysts to analyze the fundamentals of the potential investments, after which the portfolio manager assesses the companies and makes an investment decision.
*   Passive managers research different market [indices](https://www.investopedia.com/terms/i/index.asp) to pick the best fit for their fund.

Other key characteristics that portfolio managers should possess include communication skills, the ability to work independently and with others (especially when they work with other managers), and [risk management](https://www.investopedia.com/terms/r/riskmanagement.asp).

When you're researching portfolio managers, make sure you review their experience, the fees and commissions they charge, as well as their investment styles and philosophies. Try to get recommendations from others or read reviews to see what others think about specific portfolio managers.

## How Much Do Portfolio Managers Earn?

A portfolio manager's salary depends entirely on several factors, including the company they work for, the city/location where they work, their experience, and the type of portfolio they manage. According to Glassdoor, the average base pay for a portfolio manager ranges from $88,000 to $149,000 per year. Their take-home pay may increase if they meet their annual goals. Portfolio managers are included under the financial managers category in the handbook for the [Bureau of Labor Statistics (BLS)](https://www.investopedia.com/terms/b/bls.asp). The median salary for these professionals in 2023 was $156,100 per year.

## How Are Portfolio Managers Compensated?

Portfolio managers often receive a base salary. This figure depends on the company they work for, the geographic location, and their experience among other factors. In some cases, these professionals may also get additional compensation, including bonuses, commissions, benefits, and stock options.

## What Skills Do You Need to Become a Portfolio Manager?

Portfolio managers need a range of skills to be successful, including communication, research and analytical skills, risk management, portfolio construction, and the ability to work independently and with others.

## The Bottom Line

Portfolio managers shape investment strategy, and it's critical to understand how they make informed investing. Remember, active managers try to beat the market while passive managers try to align with an index. These approaches can impact both a fund’s performance and the investor's returns. It's important to evaluate a portfolio manager’s track record, including an assessment of their past performance and the success of their investment strategies.

As indicators of expertise and credibility, investors should take into consideration the qualifications and certifications of portfolio managers, such as Chartered Financial Analyst (CFA) and Certified Financial Planner (CFP). Another part of the evaluation process includes scrutinizing the manager's communication skills, research capabilities, and risk management proficiency.

Keep in mind, the portfolio manager's compensation structure of salary, bonuses, and commissions may impact their investment decisions and actions.  

> **Article Sources**
>
> 1.  CFA Institute. "[What Is a Portfolio Manager?](https://www.cfainstitute.org/en/programs/cfa/charterholder-careers/roles/portfolio-manager)"
>     
> 2.  S&P Global. "[SPIVA U.S. Year-End 2019 Scorecard: Active Funds Continued to Lag](https://www.spglobal.com/en/research-insights/articles/spiva-u-s-year-end-2019-scorecard-active-funds-continued-to-lag)."
>     
> 3.  Glassdoor. "[How much does a Portfolio-Manager make?](https://www.glassdoor.com/Salaries/portfolio-manager-salary-SRCH_KO0,17.htm)"
>     
> 4.  U.S. Bureau of Labor Statistics. "[Financial Managers - Summary](https://www.bls.gov/ooh/management/financial-managers.htm)."