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) Identifying undervalued stocks

B) No need for a portfolio manager

C) Accounting for results

D) Diversification

The correct answer here would be D) Diversification.

Explanation:

According to the efficient market hypothesis, it assumes that prices of stock reflects all the information (of the past data) and these information are available to general public, and here it is almost impossible to earn high returns from the stock (but can only be achieved when low valued or under performing stocks are bought).

Passive investment approach is that type of approach where investor wants to earn higher return but with minimum number buying and selling trades. So in these given situations a portfolio manager should look to diversify the investors investment, so that by investing in various asset classes risk can be diversified and low costing could be maintained.