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What is a Core – Satellite Investment Strategy

The Core – Satellite investment approach is a strategy that dictates a significant allocation in a portfolio to “Core” type investments or funds, and reserves a smaller allocation for investments and strategies considered to be satellites to the core portfolio holdings.

Typical core investments might be a portfolio of blue-chip stocks or funds, investment-grade bonds (taxable or tax-free), index funds or Exchange Traded Funds (ETFs). Generally speaking, the core investments would be held for more extended periods, and the re-balancing of the core allocations may take place at an appropriate time, such as ever thirteen months for taxable accounts.

Core portfolios can come in many shapes and sizes depending on the needs, timeframe, and personality of a given investor. Still, as the name implies, core investments are the building blocks and, in many (if not most) cases, suffice as an appropriate portfolio in and of themselves.

Satellite strategies and investments tend to have a narrower focus on a particular theme or opportunity. They complement the core portfolio by adding the prospect of risk/reward profile that is different than the underlying portfolio, whether that be more speculative or merely an investment that is expected (or hoped) to have a low correlation to markets or the underlying portfolio. Generally speaking, they would have shorter expected holding periods than the core holdings.

Satellite strategies and investments can include concentrated stock, positions, industry funds and ETFs, alternative investments such as hedge funds, managed futures, precious metals funds, or ETFs.

Many satellite holdings could be a part of a core holding but are designated satellite only by the role they play in the portfolio. For example, an investor could opt to use an actively managed dynamic global allocation (go anywhere do anything) mutual fund (or two) to complement a core of passive index-based funds. That investor could use that same dynamic fund and combine it with two or three other funds ( for diversification ) to create a core portfolio of actively managed dynamic allocation funds, which is diversified for both managers and perhaps strategy and style.

One significant advantage of taking a core-satellite approach is the ability to combine a passive index approach along with an actively managed funds in a single portfolio.
From an Austrian perspective, the core-satellite approach allows a systematic approach to take advantage of Austrian themes and concerns without creating a portfolio that is so far out of the mainstream, that one gets left behind when such themes are not in favor.

A simple example of a core-satellite portfolio might be:
Core – 80%
Blue-chip index stock fund 48%
Investment Grade Bond fund 32%

Satellite- 20%
Gold/Precious Metals fund 10%
Opportunistic Liquid Alternative Fund 10%

For more information on developing core-satellite strategy contact Barnhart Investment Advisory today.








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DISCLAIMER: Nothing in this article should be construed as a personal recommendation or advice. Nor should anything in this article be construed as an offer, or a solicitation of an offer, to sell or buy any investment security. Barnhart Investment Advisory Principal and clients may hold positions in securities mentioned above, and subject to change without notice. Consult your investment professional before investing.



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