In undertaking the management of a portfolio, a fund manager is responsible for achieving the objectives that have been set for the fund. In the first instance the fund manager will identify the client’s utility function, and then proceed to manage the portfolio so as to maximise this utility function. To introduce the main concepts, we examine initially overviews of passive and active management of a portfolio, the basic logic of which applies to both equity and bond portfolios.
57.1 Generic portfolio management
57.1.1 Passive portfolio management
The theoretical construct of this strategy assumes the following conditions:
■ that the client is concerned purely with risk and return, has an infinite time horizon and that his ...