What ETF Fund Managers Do

A number of factors go into determining the typical daily activities and job responsibilities for an ETF portfolio manager. Among these factors are such things as the basic type of fund being managed, whether it is an actively managed ETF or one that engages in passive index investing, and how large a support staff the fund manager has to assist in evaluating investments and handling customer service tasks. The activities of ETF portfolio managers fall into one of two categories: activities related to making investment decisions for the fund and activities involved in client/customer relations.

The primary job responsibility of an ETF portfolio manager is handling portfolio investments. The portfolio manager is ultimately responsible for making the decisions on investments to include in the fund's portfolio. An ETF manager engages in ongoing research and equity or other asset evaluation, keeping track of market activity and trends, and monitoring economic news and conditions that may affect the portfolio's profitability. Risk assessment is one essential element of portfolio management, especially when substantial changes to the portfolio's holdings are being considered.

The task of making investment choices is considerably greater with an actively managed ETF as opposed to one that follows an index. Passive index funds usually make substantial changes to the portfolio only when the index is periodically rebalanced. However, even managing index funds requires regular investment assessment. It is common for index funds to commit a portion of assets to investments not contained in the underlying index. The portfolio manager makes those supplemental investment choices. An index ETF manager periodically evaluates whether the underlying index is the best choice to achieve the fund's investment goals.

In making investment decisions, a portfolio manager is typically assisted by a team of researchers, market analysts and traders. Team meetings are held in which analysts or researchers assigned to cover specified portions of the portfolio make reports and offer opinions regarding existing or proposed portfolio holdings. The portfolio manager may also regularly contact other analysts, outside of the fund's team, for information on prospective investments. In order to assess equity investments accurately, ETF managers do not simply rely on analyzing financial statements but also commonly meet with corporate executives to make informed decisions on investing in a company's stock.

The largest investors in virtually any ETF are institutional investors, such as banks or pension funds. Since they account for a large proportion of an ETF's total assets under management (AUM), and a correspondingly large proportion of the fees the ETF generates, it is critically important to attract and maintain such investors. Therefore, an important responsibility of an ETF portfolio manager is to meet with prospective institutional investors and persuade them to invest in the fund. After securing investments, the portfolio manager continues to meet with investors periodically to ensure their continued investment in the fund and to possibly secure additional investment capital.

In addition to working with institutional clients, there is also the day-to-day work of handling customer service issues of any investor in the fund. That kind of work is typically handled by customer service personnel rather than directly by a portfolio manager. However, a fund manager still has to address general customer service issues, such as writing regular reports on the fund and informing clients of new services offered to investors or upgrades of the company's trading platform.

Customer service is one area where job responsibilities differ depending on the individual portfolio manager and asset management firm. A superstar portfolio manager at BlackRock Inc. (NYSE: BLK), for example, may not be expected to personally handle the same level of marketing and customer service work as a relatively unknown fund manager at a smaller firm. Larger asset management firms have larger auxiliary and support staff to handle sales and marketing work and customer service inquiries.

The jobs of ETF portfolio managers and mutual fund portfolio managers are often essentially interchangeable except in regard to one of the major differences between ETFs and mutual funds. Shares of ETFs are freely traded on exchanges throughout the trading day, bought and sold by shareholders. In contrast, mutual fund shares are directly purchased from, and sold to, the fund issuer, with transactions only done once daily, at the closing price.

An ETF portfolio manager is not burdened with handling actual transactions for shares. A mutual fund manager, however, has to handle share redemptions directly when shareholders wish to sell shares. Large share redemptions usually require liquidating some of the fund's holdings to handle the redemption, and the fund manager has to decide which holdings to sell.