Can someone please give me a strategy that uses both? Or is this just a red herring? cheers
A portfolio/fund that uses both passive and active investment strategies.
Passive strategy --> Indexing (Top down)
Active strategy --> Security selection (bottom up), Managed futures(Top down)
fund manager is optimistic and eager to discover companies that will give outsize returns , even though economy is in a bleak situation , GDP growth is down and also not expected to recover – what approach are they most likely using?
the fund process considers economic reports , then analyzes which sectors or industries are likely to do well in the current environment and makes sector bets. – What approach are they using
you know details about the economy, looking only at companies here… Bottom Up?
Combination here… look at economy and at companies within sectors that will perform well in that economy.
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Combination. Economic forecast (top) and individual firm bets (bottom).
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Top down. ONly looking at economy/sectors. Sector rotation is pure top down.
Bottom-up has the following advantages:
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Ability to identify undervalued companies regardless of attractiveness of sector
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More appropriate for managers with niche strategies
Bottom up: You are comparing two things. stock to stock, sector to sector, index to index, market to market, country to country.
Top down: You are not comparing things. You are just analysing the economic data to decide the direction of index or market movement. GDP, employment rate, interest rates.
Now, if you are comparing GDP/employment/interest rates of two countries? Guess it is bottom up.
Its bottom up!..Company/Industry analysis…Economy is not doing well, no economic analysis involved
Top-down…only making sectoral bets…company analysis would not be req
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Bottom Up
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Top Down
Do we have an answer Jana?
Yes , Level3Once is correct . I just took some words from the text about Top-Down and Bottom up and used them in the example