For example, if the fund manager, on analysis, finds that India will have a high
number of 30-40 year olds in the next 2-3 years, then the 30-40 year old market
segment becomes the theme he/ she chooses to follow. The fund manager will then
look at sectors which cater to this market and analyze stocks in those sectors.
Since the market is initially analyzed at a macro level and then drilled down to
individual stocks, this method is known as a Top-Down investment method.
This is the opposite of Top-down investing. In this method, the fund manager looks
at individual stocks based on the analysis of market performance and focuses on
elements like company management, price to earnings ratios and other similar factors
to determine future opportunities. This method does not go all the way up to the
macro-level and is usually preferred by most investors and fund managers. This approach
ensures that investments are made based on the current standing of the company and
chances of good returns in the future.
Top-Down and Bottom-Up investment methods are typically deployed in tandem by the
investment managers to ensure that they take informed decisions. However, understanding
the fundamental difference between them can be helpful for individual investors