Management Styles

Portfolio managers do not all share the same management style.

There is no right or wrong approach to management. Depending on the economic context, some styles may be more successful than others. It is therefore advisable to build your portfolio to include a variety of management styles in order to limit your exposure to risk.

The various methods of analysis, security selection, and portfolio building can be grouped according to their management styles:

Growth
Growth at reasonable price
Value
Fundamental
Quantitative
Technical
Ascending approach
Descending approach
Risk control

Growth

• The manager prioritizes businesses’ current and future earnings
• A higher price is sometimes paid for securities if the prospect of growth justifies the purchase
• Corporations are chosen based on their success in their field
• This style has a fairly high rate of rotation: purchases and sales are frequent as returns stem from profits made by selling securities above their purchase price

Growth at Reasonable Price

• This style is commonly referred to by its acronym, GARP
• It is based on securities with high potential that are being sold at a reasonable price

Value

• The manager seeks securities with under-valued prices
• There is little turnover within the portfolio, as the manager waits for securities purchased at a low price to reach their full value
• This style produces the best results in bear markets

Fundamental

• The manager analyzes measurable financial data (financial results, prices, earnings, sales, etc.) for businesses and their competitors and evaluates more subjective aspects such as management quality, research and development activities, etc.
• The manager establishes financial forecasts in order to :
  • Determine a corporation’s potential for growth (growth-oriented managers)
  • Compare a security’s intrinsic value to its current price (managers focused on security appreciation)

Quantitative

• The manager uses complex mathematical and statistical models that highlight price trends and track corporations’ earnings and profitability
• Quantitative analysis can be used to identify securities that outperform the market or to manage a portfolio’s risk
• This management style focuses on key parameters and asset objectives, but does not involve a qualitative study of the issuing corporations or the sectors to which they belong

Technical

• The manager determines the value of corporations’ securities through the statistical analysis of data generated by their stock market activity (particularly prices and transaction volume)
• Using graphics or other tools, the manager identifies trends that may predict future market activity

Ascending Approach

• The approach spans from specific to general, meaning that the manager first analyzes businesses, then sectors, then the national and international economies
• Securities are selected according to their financial quality and the status of their issuing corporations
• The outlook for the business sector involved and the economy is analyzed from a holistic perspective

Descending Approach

• The manager’s approach goes from general to specific
• The economic environment is analyzed to identify locations and industries most likely to flourish
• Industry leaders and the most promising securities from the identified sectors are then researched

Risk Control

• This style applies to fixed-income securities
• The manager takes into account all elements of risk: portfolio duration with respect to that of the reference index, the overall interest rate structure, securities distribution by issuer category, etc.