This Market Business News information hub provides information on portfolios, including information on what it is, the different portfolio strategies that exist, the role of a portfolio manager, and more.

What is a Portfolio?

A portfolio is a simply a collection of financial assets held by investors and/or managed by financial professionals..

A portfolio typically includes a range of investment options, such as stocks and bonds.

Portfolios are created according to the amount of risk an investor is willing to take and their investment targets.

Read more about what a portfolio is.

An efficient portfolio

An efficient portfolio is one that provides the best return relative to a given level of risk – also known as an optimal portfolio. If, given a certain level of risk, the expected returns are met then it is an efficient portfolio.

In contrast, if the expected returns are not met, or the risk required to meet the expected level of return is too high, then it is an inefficient portfolio.

Learn more about efficient portfolios.

A minimum-variance portfolio

A minimum variance portfolio is a well diversified portfolio that includes investments that are risky on an individual basis, but when grouped together are less risky given the anticipated return.

With a minimum variance portfolio the investor essentially hedges each investment with an offsetting investment.

Read more about minimum variance portfolios.

Feasible Portfolio

A feasible portfolio is one that an investor can create given the assets that they have available to use – capital resources limits, investment goals, and tolerance for risk.

Different portfolio strategies

When it comes to designing a portfolio it is necessary to have some sort of game plan or strategy.

Every portfolio will vary to some degree, but they often share similar strategic styles.

There are two main portfolio strategies: passive and active.

A passive portfolio strategy focuses on maximizing diversification with little expectational input.

An active portfolio strategy consistently moves capital away from poor performing investments and transfers it to potentially higher performing ones based on information and forecasting techniques.

Using a portfolio manager

A portfolio manager is a person who is in charge of making investment decisions with other people’s capital or someone who handles a financial institutions portfolios.

It is their job, with the help of researchers and analysts, to establish an investment strategy, decide what to invest in and how much should be spent.

Read more about the role of a portfolio manager.


Modern Portfolio Theory, or MPT

The Modern Portfolio Theory attempts to maximize portfolio expected return for a given amount of portfolio risk, or minimize risk for a certain level of expected return.

According to the theory, this is possible if the investor chooses the proportions of various assets carefully.

Find out more about The Modern Portfolio Theory.

Factor Portfolio

A factor portfolio is a portfolio that is diversified. It includes various investments that have different levels of risk exposure – such as changes in inflation, interest rates and/or oil prices.

Efficient diversification

Efficient diversification is a principle that says risk-wary investors maximize portfolio expected return given a certain level of risk. Essentially this means making investments that will generate a return that are not overly risky.

Portfolio insurance

Portfolio insurance is when a portfolio is hedged hedging against the market risk by short selling stock index futures.