Chapter 1Introduction to Portfolio Management and Analytics

Portfolio management is the process of managing money. Other terms commonly used to describe this process are investment management, asset management, and money management. Accordingly, the individual who manages a portfolio of investment vehicles is referred to as a portfolio manager, investment manager, asset manager, or money manager. We use these terms interchangeably throughout this book.

In discussing portfolio management, reference is made to the “investor.” The investor is the entity that will receive the benefits from the investment of proceeds that results from managing of the portfolio. Typically, an investor does not make portfolio management decisions. Rather, the investor delegates that responsibility to professional portfolio managers. Professional portfolio managers rely to varying degrees on portfolio analytics for identifying investment opportunities, keeping portfolios aligned with investment objectives, and monitoring portfolio risk and performance.

In this book we review widely used approaches to portfolio analytics and discuss new trends in metrics, modeling approaches, and portfolio analytics system design. This chapter provides an introduction to the portfolio management process. We begin with an overview of asset classes. We then describe the main areas of portfolio management where analytics are used, review trends in systems for portfolio analytics, and explain how the themes in this introduction ...

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