What is a fund manager?

Definition and Examples of a Fund Manager

Most mutual funds and exchange-traded funds (ETFs) have a fund manager, sometimes known as an investment advisor, or a management team that implements the fund’s investment strategy. The fund manager executes the fund’s investment strategy by analyzing investment options and constructing the fund’s portfolio. Some funds are managed by one or two individuals, while others are managed by a team of analysts. Even funds that mention a single manager often have a number of analysts working to identify investment opportunities.

How Do Fund Managers Work?

Mutual funds and ETFs typically follow an investment strategy outlined in the fund’s prospectus. Some funds follow an aggressive growth strategy that exposes the underlying investment to higher risks, while others take a more balanced approach. Funds may be specific to a certain country or region or may invest in specific sectors such as pharmaceuticals or technology.

Fund managers are expected to follow the prospectus in building the investment portfolio (although many prospectuses indicate that fund managers have some flexibility to deviate from the expressed investment strategy). Large funds usually have a team of analysts conducting research on behalf of the fund manager. Although one or more individuals may be listed as fund managers, there is often a larger team of investment analysts working on portfolio construction.

Fund managers regularly meet with executives and other officials as part of their search for investment opportunities. They are also responsible for informing shareholders about the fund’s performance and explaining the factors that influenced the fund’s performance. This is done in an annual report or more frequently.

Many fund managers have a background in finance, economics, or business. They understand how financial markets work and the macroeconomic factors that can impact markets. They may start as analysts in a team and work their way up.

Alternatives to Fund Managers

As many managed funds do not outperform their benchmark indices, passively managed funds have become more common over the past decade or so. These funds are typically referred to as passive investment, and the objective of these funds is to match the market index that the fund mimics, before fees. Since these funds do not require the investment time that actively managed funds do, fees are usually a small fraction of those charged by actively managed funds.

Many ETFs operate as passively managed investments similar to index funds. Like mutual funds, ETFs have a pre-selected mix of assets, whether stocks, bonds, real estate investment trusts (REITs), or otherwise. The key difference between an ETF and a mutual fund is that an ETF trades in real-time just like a stock, instead of having a net asset value calculated at the end of each trading day as is the case with a mutual fund.

What Does This Mean for Individual Investors?

Investors who do not feel comfortable choosing their own stocks and bonds for their portfolio can use funds instead. However, this does not necessarily mean that no research is required. Those investing in actively managed funds should read their prospectuses to ensure that the fund management strategy aligns with their goals and their comfort level with risk.

The fund’s prospectus or annual report also provides information about the fund manager or management team, including how long they have been managing the fund and their past performance in the market.

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It is important to remember that past performance is not a guarantee of future results, even when the fund manager remains the same. However, if you are able to find a fund manager who delivers results that outperform the stock market for a decade or longer, like Peter Lynch, the returns of that fund manager will more than suffice to cover the fees imposed on the fund.

Source: https://www.thebalancemoney.com/what-is-a-fund-manager-5198227