In an efficient market and for an investor who believes in a passive approach to investing, what is the primary duty of a portfolio manager?
A) accounting for results
B) diversification
C) identifying undervalued stocks
D) no need for a portfolio manager

Question

Quizplus · Accepted Answer

In an efficient market, where all available information is already reflected in stock prices, it is believed that active stock picking or identifying undervalued stocks is not an effective strategy. As a result, the primary duty of a portfolio manager is to ensure proper diversification of the portfolio to match the investor's risk tolerance and investment objectives, while minimizing costs and taxes. Therefore, the best choice is B, diversification.

In an Efficient Market and for an Investor Who Believes