What is Portfolio Management?

Portfolio management is the selection and management of investments to meet the long-term financial goals of an individual or organization. Portfolio managers craft customized investment and portfolio management methodologies for each client, depending on the client’s financial objectives, investment horizon, and risk tolerance. 

Portfolio Management Strategies:

Portfolio managers broadly follow one, or a combination, of the following portfolio management strategies:

1- Asset Allocation:

2- Diversification:

3- Rebalancing:

4- Active Portfolio management:

5- Passive Portfolio management:

Let’s discuss each portfolio management strategy individually to understand the portfolio management styles generally adopted by portfolio managers.

1- Asset allocation:

Managers allocate funds to different asset classes like stocks, bonds, commodities, real estate, etc that do not correlate with each other, or in other words, their prices do not move in tandem. Investing funds in different uncorrelated assets is called asset allocation. The benefit of asset allocation is that the risk is diversified because of the investment in different asset types. If the price of one asset class declines, the other assets in a portfolio will remain stable or increase in value because of the presence of uncorrelated assets in the portfolio, thus saving an investor from suffering a significant decline in the portfolio had the investment been made in correlated assets or a single asset class.

2- Diversification:

Diversification differs from asset allocation because it involves investing funds in uncorrelated assets but in the same asset class as opposed to different asset classes in asset allocation. For example, a portfolio manager can select two stocks from different sectors having a negative correlation with one another. A well-diversified portfolio is less risky and instills stability in the portfolio’s returns.  

3- Rebalancing:

Portfolio managers rebalance their portfolios after a certain period (annually or semi-annually) to restore the asset mix of the portfolio that gets disturbed due to the change in market prices of the assets in the original portfolio. Portfolio rebalancing is done to keep the portfolio achieve its objectives and include or exclude new assets keeping in view the market dynamics.

4- Active Portfolio Management:

Some portfolio managers adopt the active portfolio management strategy and actively buy and sell securities in an effort to generate excess returns as compared to the benchmark index or market returns. In an active portfolio management strategy, a portfolio manager continuously keeps track of the portfolio risk-return, and buys/sell assets based on the market outlook. 

5- Passive Portfolio Management:

Passive portfolio management strategy involves replicating the returns of a benchmark index. Portfolio managers adopting the passive portfolio management strategy create a portfolio and determine the weights of individual assets to create a passive portfolio that mimics the returns of the benchmark. Such a portfolio is easy to manage and is generally less costly because of less trading and transactions in contrast to the active portfolios. 

Importance of Portfolio Management Software in Portfolio Management:

To manage a wide range of investment portfolios of different clients, portfolio managers require reliable and efficient portfolio management software with all the necessary features and functions. 

With a large number of portfolio management software available in the market, the decision to choose the best one can be tricky. In this article, we will discuss the qualities of a capable and robust portfolio management software, helping you to choose the best portfolio management software for your portfolio management needs. 

1- Portfolio Modelling:

While creating and managing portfolios, portfolio managers construct different financial risk models to understand the risk-reward potential of the portfolios. To perform portfolio financial risk modeling, financial advisors need robust and reliable software that creates accurate models for complex portfolios, allowing portfolio managers to effectively manage the risk of the portfolios.

2- Portfolio Trading:

An efficient portfolio management software gives access to different trading tools as well, empowering portfolio managers to do automated trading as well. With the help of trading tools, portfolio managers can input risk limits and other trading criteria for trades to execute, which allows portfolio managers to remain disciplined by following the risk tolerance levels and not carried away by emotions in the event of abnormally high profit or loss in a particular trade. 

3- Portfolio Rebalancing:

Portfolio rebalancing is essential to achieving the desired return of a portfolio. An efficient portfolio management software should offer rebalancing solutions so that the portfolio managers do not have to manually perform calculations and offload and buy a bulk of securities to do periodic rebalancing. With portfolio management software, portfolio managers can easily perform portfolio rebalancing with minimum costs without significantly disturbing the market prices.

4- Compliance:

One of the key headaches for wealth managers is compliance as more and more regulations come out every year. Any portfolio or wealth management system should involve a complete compliance module that provides detailed reports for easily complying with regulations.

5- Cash Management:

Portfolio managers managing mutual funds hold some portion of the funds as cash to allow for redemptions and investing in other favorable avenues. Too much uninvested cash can increase the opportunity cost of your portfolio in the shape of missed returns. Deciding how much cash should be held as a proportion of your portfolio is critical in achieving the financial objective of a portfolio. A portfolio management software helps you decide the percentage or amount of cash to hold based on the analysis of the past data and forecasts.

6- Data Integration:

Portfolio management software that aggregates data from different sources is critical to measure the latest and accurate position of the portfolio. For example, a portfolio manager managing the portfolio of a client with many bank accounts and investments in various asset classes will have trouble managing and tracking different assets accurately. A portfolio management software with the capability of data integration (open wealth management) from multiple financial services institutions can make the task of portfolio manager easier by aggregating real-time positions of different asset classes in one place. 

7- Performance Evaluation:

Portfolio managers give special importance to the performance evaluation of a portfolio. Portfolio management software must provide detailed performance evaluation reports of the portfolio, enabling portfolio managers to determine important metrics like Sharpe Ratio, Treynor Measure, Jensen Measure, etc. Performance evaluation also helps portfolio managers to streamline the portfolio to ensure that the portfolio remains in line with the risk-reward objectives. 


Portfolio managers rely heavily on portfolio management software to successfully manage portfolios of multiple clients. However, if you select a portfolio management software with only limited capabilities it can suppress the performance of the portfolio manager. The selection of a robust portfolio management software is therefore critical for a portfolio manager to perform the day-to-day tasks effectively. Look for a system that is open and includes all the necessary modules to fully operate an independent financial advisory firm including a CRM for financial advisors, digital onboarding, compliance, portfolio rebalancing, integrations and support for the custodian of your choice.