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Your Money: How core-satellite portfolio works


Your Money: How core-satellite portfolio works

Your overall investment portfolio, comprising your core and satellite, must reflect the target asset allocation ratio as per your risk profile

Investment approaches and strategies have proliferated in the last two decades, to the extent that investors tend to get confused between similar strategies. The core-satellite portfolio strategy is one such approach, which can be mistaken for the static asset allocation strategy in vogue. Let us decode the core-satellite portfolio strategy and review its applicability.

What is core-satellite portfolio


The concept of core-satellite portfolio has its origins in the selection of passively managed and actively managed funds to construct investment portfolios. While passively managed funds provided long-term stability and formed the core portfolio, actively managed funds can yield higher returns and form the satellite portfolio. Passively managed funds entail low cost and lack of fund manager involvement, substantially bringing down the risk of the core portfolio. Actively managed funds typically entail higher risk but also are more likely to yield higher returns, making them ideal for tactical changes to the portfolio.


Importantly, the core portfolio should comprise a major part of the overall portfolio, stay relatively untouched, and money should never be withdrawn from it before fulfillment of identified goals. The satellite portfolio can be partially liquidated when appropriate.

What is core-satellite portfolio


The concept of core-satellite portfolio has its origins in the selection of passively managed and actively managed funds to construct investment portfolios. While passively managed funds provided long-term stability and formed the core portfolio, actively managed funds can yield higher returns and form the satellite portfolio. Passively managed funds entail low cost and lack of fund manager involvement, substantially bringing down the risk of the core portfolio. Actively managed funds typically entail higher risk but also are more likely to yield higher returns, making them ideal for tactical changes to the portfolio.


Importantly, the core portfolio should comprise a major part of the overall portfolio, stay relatively untouched, and money should never be withdrawn from it before fulfillment of identified goals. The satellite portfolio can be partially liquidated when appropriate.

What is core-satellite portfolio


The concept of core-satellite portfolio has its origins in the selection of passively managed and actively managed funds to construct investment portfolios. While passively managed funds provided long-term stability and formed the core portfolio, actively managed funds can yield higher returns and form the satellite portfolio. Passively managed funds entail low cost and lack of fund manager involvement, substantially bringing down the risk of the core portfolio. Actively managed funds typically entail higher risk but also are more likely to yield higher returns, making them ideal for tactical changes to the portfolio.


Importantly, the core portfolio should comprise a major part of the overall portfolio, stay relatively untouched, and money should never be withdrawn from it before fulfillment of identified goals. The satellite portfolio can be partially liquidated when appropriate.

This article was originally published in The Financial Express