Impact on Investment-Management Strategies

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11/09/2019
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11/09/2019

Impact on Investment-Management Strategies

One can either actively or passively manage investments. Does that decision have an impact on which approach (“top-down” or “bottom-up”) to use? Make sure that you also discuss which “players” and “Investments” are more suited for either type of management and approach.

Response

A top-down portfolio approach starts by investor deciding the proportion that they will invest in each asset and then deciding what particular securities they will hold in each asset, through security analysis. A bottom-up approach, in contrast, is when the investor constructs his/her portfolio from securities that seem an attractive opportunity to him/her.

Investors can choose either to use a passive management strategy for their assets, which means having a diversified portfolio and not spending resources on attempting to improve its performance through security analysis, or an active strategy, which means attempting to improve the portfolio performance by trying to outperform indexes through experience, research , and forecasting.

I think the management strategy does not has an impact on the portfolio approach that the investor would use. in both cases portfolio approaches (top-down or bottom-up), the investor could decide to manage in an active or a passive manner. In a top down approach, the investor could actively manage the portfolio by focusing on the overall economic factors to choose the broad asset class distribution of its portfolio. In the bottom-up approach, the investor could actively manage the portfolio by analyzing the expected performance of specific securities.

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