Portfolio management enables investors to delegate decision-making to the financial institution, which assumes responsibility for all decisions about the products, investments and transactions carried out.
The financial institution is obliged to send customers regular information about the composition of their investments, including their value and performance with respect to the benchmark indicator.
There is a fee for the use of the portfolio management service on top of other fees related to the transactions carried out and the financial institution must issue regular fee statements, although investors can request these details at any time.
Portfolio management in Spain can be carried out both by private investors on their own behalf and by companies authorised to provide this service. These companies are as follows:
- Management firms of collective investment institutions (CIIs), which are authorised to manage collective investment institutions.
- Portfolio management companies (PMCs), which are only authorised to manage other people's portfolios. These companies can't create portfolios with their own assets but they can manage their customers' portfolios.
- Securities companies (SCs), which can manage both their own portfolios and those of others.
When it comes to managing portfolios, there are two different strategies:
- Active management, where the primary aim is to obtain a higher return than the market. This type of management requires a manager with excellent analytical skills, a robust knowledge of the market and plenty of experience.
- Passive management, which consists in ensuring that the performance of the assets under management is perfectly aligned with the market. This is achieved by building a portfolio that mirrors the benchmark index and this type of management is therefore also known as indexed management.
The main factors that influence portfolio management are:
- Asset allocation, which is crucial because a precise combination of assets can maximise the return.
- Risk minimisation.
It's important to bear in mind the investor's risk tolerance because this determines the balance of risk in the portfolio.
Diversifying the investment across different markets, securities and sectors can also help reduce the risk.
There must be benchmarks to ascertain the risk/return ratio, track possible errors and ultimately measure performance as accurately as possible.
Restructuring the portfolio on a regular basis will help to maintain the correct balance between risk and return.