A fund manager has almost total control over the beta of his portfolio.

Question

Quizplus · Accepted Answer

Beta is a measure of the volatility or risk of an asset in relation to the overall market. As a fund manager can choose what assets are included in the portfolio and the weightings of each asset, they can also control the overall beta of the portfolio. This is done by adjusting the asset allocation of the portfolio, for example, by adding low-beta assets to reduce the overall beta, or high-beta assets to increase it. However, there are external factors that may affect the beta of the portfolio, such as changes in market conditions or investor sentiment, which are beyond the control of the fund manager.

A Fund Manager Has Almost Total Control Over the Beta