What has been the main theme of fund management over the past year at PSX, as it rose by more than 80% in terms of KSE100 Index gains;
Interest rates declining so go to equities?
Given such extraordinary market movements—where PSX experienced extreme lows followed by absurd highs, driven largely by severe external factors—the small size of the market was overwhelmed. In such circumstances, fund managers had little choice but to go with the flow, as the massive shifts were primarily the result of extraneous forces.
But how can an "over-engineered" financial analyst, who must master all sorts of "financial combinations" and endure endless certifications and courses, do anything to outperform gains purely driven by market movements? Or is he merely a cog in the system, executing trades within a portfolio structure and preparing management reports under the old theme of "earning dividend income while rooting for capital gains"?
Portfolios within a certain class typically cannot adopt an aggressive posture, whether by holding significant cash reserves or quickly shifting positions between equity, debt, or cash. Such limitations often stem from the market's size or regulatory constraints. Nevertheless, some fund managers may have delivered higher returns for their clients by strategically reallocating across different portfolios. However, for individual portfolios, such as an "equity portfolio," the challenge of addressing performance remains.
As a fund manager, even if the fund structure allows only a 5% of your portfolio to demonstrate performance, seize that opportunity and evaluate yourself based on it. As a financial analyst, you are trained to conduct analyses that provide insights into areas where a business could be rerated, whether due to core performance improvements or a shift in its business scope. Such opportunities often lie beyond the companies included in the index. Find them.
Additionally, you could opt for a more straightforward approach by seeking outperformance within the portfolio structure. This could involve advocating for higher allocations to companies within the indices, identifying those with the potential to outperform, without significantly extending yourself in terms of risk. Alternatively, you might decide to reduce the weight of companies that form a core of your portfolio but in your assessment may underperform.
More on a portfolio structure later.
Organized teaching stifles inquiry, and rigid structures suppress initiative. Yet, you must still be part of these systems and not act as a lone ranger.