The Core and Satellite Portfolio Approach

Creating any investment portfolio is not as simple as people believe. Holding the right investments at the right time is almost impossible to time which is why a core and satellite approach can be extremely beneficial.

Core Funds

The core funds refer to the heart, soul or centre of the portfolio and forms the basis of the portfolio. These are the large managed funds or Exchange Traded Funds (ETF’s) that perform well in all market conditions and provide a diverse range of sector exposure. Some examples of core funds include the S&P500 the Europe350 or the ASX200, all three of these ETF’s provide exposure to the largest public companies in America, Europe and Australia respectively, and are heavily diversified across all industries in each region.

 

Satellite Funds

Satellite funds are the additional holdings you may use to strengthen your returns in all market conditions. These tend to be a lot riskier and more volatile and provide exposure to some niche industries. These satellite funds compromise of a small percentage of the total portfolio and are used to complement the core funds in order to generate more returns with a little more risk. For our clients we use Morningstar to identify and opportunities for undervalued companies whether they be large cap or small caps. We may buy small cap companies while their prices are low and hold until their price recovers or continue to hold if it still has solid fundamentals. We also may use satellite funds based on our macroeconomic views, if we believe a sector will outperform, we may buy investments that provide exposure to certain sectors such as healthcare or minerals.

 

Fees

One important note when using a core and satellite approach is to acknowledge that you shouldn’t be trading your satellite funds too regularly as this may increase fees through brokerage. While satellite funds tend to have shorter investment timeframes it is important to not try time the market and trade these actively in order to keep fees down.

 

Important information and disclaimer

This document has been published by Mark Welch & Lachlan Carmody, EPG Wealth, Pty. Ltd. Authorised Representative(s) of Apogee Financial Planning Limited (ABN 28 056 426 932) (“Licensee”), an Australian Financial Services Licensee, registered office at 105 –153 Miller St North Sydney NSW 2060 and a member of  the  National Australia Bank Limited group of companies (“NAB Group”) .

Any advice in this publication is of a general nature only and has not been tailored to your personal circumstances. Accordingly, reliance should not be placed on the information contained in this document as the basis for making any financial investment, insurance or other decision. Please seek personal advice prior to acting on this information.

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