DIY Investor Magazine
|
Oct 2017
27
A diversified, risk profiled, passive core can provide a
great solution. A range of passive funds across asset
classes from different managers.
The investor selects from say, cautious, balanced or
growth and then adds their particular satellites – stocks,
ETFs, commodity etc.
VOLATILITY
By dedicating a large portion of a portfolio to passive
investments, the volatility of the total portfolio should be
reduced – particularly if a range of markets and assets
are selected.
Adding investments, such as a commodities fund, which
are not correlated to the movements of the stock market
as a whole, may limit overall volatility when the markets
are in flux. Adding a few single stocks will increase the
return but also hopefully the reward.
RETURNS
Active managers seek to outperform their benchmarks
but at a cost across the whole portfolio. By allocating a
minority of the portfolio to active management or to an
investors preferred stocks / fund the opportunity is in
place for the portfolio to outperform the benchmark.
But overall costs are reduced. This means the satellite
adds to the return generated by the overall portfolio and
resulting in benchmark-beating returns for the portfolio
as a whole.
CONCLUSION
The core-satellite approach provides an opportunity
to access the best of all worlds. Better-than-average
performance, limited volatility and cost control all come
together in a flexible package that can be designed
specifically to cater to your needs. Perhaps it is why
some of the largest and best resourced investment
funds in the world (pension funds and sovereign wealth
funds) have adopted this approach.
THE CORE-SATELLITE APPROACH PROVIDES AN
OPPORTUNITY TO ACCESS THE BEST OF ALL WORLDS’
