The Equity Portfolio Management refers to the planning and implementation of various philosophies, methodologies, and strategies for beating the equity market. The primary objective of all investment analysis is to take investment decisions or advise others for making their own investment decisions. Thus, there exists a strong correlation between equity portfolio management and science of equity analysis.
Equity Portfolio Investment Philosophy
management company and do not have freedom to follow general investment philosophy for governing the portfolios they manage. The portfolio managers are generally guarded by market capitalization guidelines and thus, equity portfolio management involves understanding of the investment universe for selecting the efficient investments.
There are many institutional equity portfolios that are not taxable like pension funds. This provides more managerial flexibility to portfolio managers as compared to taxable portfolios. These non-taxable portfolios utilize greater exposure to short-term capital gains and dividend income than their taxable counterparts.
Portfolio managers of taxable portfolios take special care of following factors.
· Stock holding periods
· Tax lots
· Capital losses
· Tax selling
· Dividend income generated by portfolios
In comparison to non-taxable portfolio, the taxable portfolios are more successful with a lower portfolio turnover rate. The portfolio management activity plays a major part in building and managing portfolios over time.
Building the Portfolio Model
Building and maintaining a portfolio model is a common aspect of equity portfolio management. It may involve running either one portfolio or many portfolios in one equity investment product. The individual portfolios are matched against a portfolio model.
Every stock in the portfolio model is assigned a percentage weighting by a Portfolio manager. It is followed by modifications of individual portfolios for matching against this weighting mix. The computerization of Portfolio models is done by using either Microsoft Excel or portfolio management software tools.
Achieving Portfolio Efficiency
An equity portfolio manager can achieve analytical efficiency by running all the portfolios in a similar way. The portfolio manager is required to have the knowledge and understanding of 30 or 40 stocks that are owned in comparable proportions in all portfolios instead of 100 or 200 stocks. The analysis of 30 or 40 stocks is easily applied to other portfolios by modifying the model weights in the portfolio model with passage of time. The dynamic market causes the rise and fall of individual stocks over time and the portfolio manager is required to change the model weightings that for reflecting the investment decision in all portfolios.
Equity portfolio management involves the portfolio modelling as an effective way for evaluating the key set of stocks to a set of portfolios in one group. It acts as an efficient link between portfolio management and equity analysis. With the rise and fall in outlook of individual stocks, the weightings of these stocks needs to be changed accordingly in the portfolio model for optimizing the return of all portfolios in the group.