Core–Satellite Strategies: Combining Stability and Opportunity in an ETF Portfolio

Abstract

So-called core-satellite strategies have gained popularity among asset managers seeking to combine strict risk control with opportunities to create alpha through active management. Traditionally core satellite portfolios consist of a passively managed core around which the satellites—usually actively managed vehicles—“revolve.” The rationale behind this is that the core of the portfolio should be consistent with investors’ long-term aims, enabling them to catch asset class risk premiums in efficient markets in a controlled and cost-effective way. The satellites are meant to generate alpha in inefficient market segments.

TOPICS: Portfolio construction, exchange-traded funds and applications