• Funds Management Industry

Funds Management Styles
This is relates to how the fund is managed. At the highest level funds are described as being either active or passive which relates to whether the fund is managed actively with buying and selling based on the fund managers decisions about which stocks to buy and sell and when. Passive funds management by contrast is based on buying and selling stocks in accordance with the composition of an index and is therefore seen as passive.

Active management styles
Active funds management encompasses a range of styles based on buying stocks with different characteristics. The most well known styles are value and growth which refers to the price of these stocks based on a range of measures. These include a stock’s price relative to its earnings (P/E ratio), price to book value (P/B ratio), and dividend yield to name a few.

Some of the different styles
Value: Fund managers look to invest in undervalued stocks based on a range of metrics that make them cheaper than comparable stocks. The idea is that over time their prices will go up as the market recognises their value.

Growth: Fund manager picks stocks that are expected to grow much faster than other stocks. These stocks will typically trade at higher multiples (P/E, P/B, ratios) than other stocks because they are perceived to be able to grow earnings faster. Past examples of growth stocks have come from the tech and biotech sectors. Today many mining and mining services stocks on ASX are growth stocks because their earnings are expected to grow rapidly as they develop their projects and hence earnings.

Momentum: Momentum investing is based on buying stocks that have risen quickly based on the belief that they will continue to outperform for a period. Momentum investing as a source of returns is borne out by long term empirical data.

Macro or Top down: Investing based on macroeconomic factors is based on investing in sectors in the economy that are doing well (or are expected to do well) and then picking stocks within those sectors.

Asset Allocation
Active or passive asset allocation accounts for a large part of returns is generally defined as the allocation of an investor's portfolio among a number of "major" asset classes.. This is easy to understand when you consider how widely returns vary. For example in a bull market, stocks and other market linked securities perform well outpacing returns from cash or bonds. In a bear market the reverse is true.