Portfolio management Essay Example | Topics and Well Written Essays - 1750 words

Portfolio management - Essay Example The most vital decision regarding investing that an investor can make involves the amount of risk he or she is willing to bear. Most investors will want to obtain the highest return for the lowest amount of possible risk. However, there tends to be a trade-off between risk and return, whereby larger returns are generally associated with larger risk. Portfolio management helps to bring together various securities and other assets into portfolios that address investor needs, and then to manage those portfolios in order to achieve investment objectives. Effective asset management revolves around a portfolio manager's ability to assess and effectively manage risk. With the explosion of technology, access to information has increased dramatically at all levels of the investment cycle. It is the job of the portfolio manager to manage the vast array of available information and to transform it into successful investments for the portfolio for which he/she has the remit to manage. Portfolio management has faced lots of ups and downs due to the market turbulences caused by the global market credit crunch. In this following section, the functions and roles played by the portfolio managers are discussed upon.Portfolio management is principally about risk and return strategies. It is concerned with the construction and management of investment assets. There are two fundamental ways that a portfolio manager can add value which are follows ( Lumby, 1994): Strategic diversification- The portfolio manager generates value by effectively exploiting diversification opportunities between the assets in the portfolio. For instance, two stocks that are not well correlated can be combined so as to get more return relative to risk. Alpha return- The second way that fund managers add value is by generating returns that are in excess of what could be obtained by a reasonable combination of the asset classes in the fund. Alpha generation may be due to the relative weight given to each of a series of asset classes at any given time or it may be due to the specific stocks selected within an asset class-finding the best stocks in a sector. Passive portfolios have predictable styles. A passive investor knows exactly what types of securities he or she is invested in. Active managers, on the other hand, can vary the composition of their portfolios significantly over time - a problem known as "style drift". The styles of portfolio management are discussed in the following section. Active portfolio manager An active portfolio manager is one who constantly makes decisions and appraises the value of investments within the portfolio by collecting information, using forecasting techniques, and predicting the future performance of the various asset classes, market sectors, individual equities or assets. His goal is to obtain better performance for the portfolio. He uses personal ability and judgment to select undervalued assets to attempt to outperform the market. The active managers adopt strategies, all involving detailed analysis, as given below (Brentani, C. 2004, p.93): i. Top-down approach- This approach involves assessing the prospects for particular market sectors or countries (depending on the index), following a detailed review of general economic, financial and political factors. Sector weightings may be changed by fund managers depending on their view of the prevailing economic cycle (known as sector rotation). If a recession is likely, shares in consumer sectors such as retailing, homebuilders and motor distributors will be sold and the proceeds reinvested in, say, the food manufacturing sector. A portfolio is then selected of individual shares in the favored

Oil Essay Example | Topics and Well Written Essays - 750 words

Oil - Essay Example Oil is the world’s biggest industry. It has often been referred to as the â€Å"black gold† and the devils excrement. Oil is found in the world’s most democratic and well governed countries such as Norway and Canada and also in some of the most autocratic nations such as Saudi Arabia and Nigeria (Roberts, 2004). In countries like Ghana and Nigeria, oil has become a curse. When oil was being mined in Ghana, the local people hoped for a better living standard and an improved sanitation. Everyone in Ghana was very excited and waited anxiously for the mining of oil for the first time in the country. They hoped that Ghana would be able to break the â€Å"curse† that had been associated with the mineral. This event only saw a few getting richer and the poor getting poorer. The same problem faced its neighbor Nigeria which is the largest crude producer in the continent. There was such a big gap between the rich and the poor because of corruption in the oil industry in Nigeria (Roberts, 2004). Oil on the other hand has had a positive influence to all the countries that have mined it. Despite all the negative impacts of oil, countries have been able to develop and upgrade their infrastructure. Third world countries have been able to export their oil to developed countries and have been able to use this to put up infrastructure like roads, schools and even hospitals. Oil has been referred to as ‘power’ in terms of its influence in political dominance and control. Oil is needed in order to grow food, put up infrastructure, manufacture food and transports them to the market and to advance technology. However, it lubricates both national and international politics. The following are some of the reasons that make oil such a powerful political force in the world today. We need oil every day in order to survive. Oil is universal and it is cheaply available, we do have other sources of energy such as electricity but there has not been any other