"core" in core-satellite = largest portion?

CFA Level III
#1

Hey guys,

Does the core part in a core-satellite portfolio really need to be the largest of all? I think I’ve seen answers that argue for the percentage being irrelevant. As long as the portfolio has a distinct core portion and several satellite portions, we can define it as a “core-satellite” portfolio?

#2

NOOOOO i saw an exercice in which they have only 20% in core and still they called it core satellite

#3

Yes, basically the core portion can be very small (even 10%) - this means nothing more than the investor has higher risk tolerance.

#4

you call it core-satellite if one portion (big or small depending on risk tolerance) is tracking a broad index (having a zero tracking risk and a beta of 1)… and the other portion is actively managed (high tracking risk).

Can anyone explain the completnence portfolio please ?

#5

Can anyone explain the completnence portfolio please ?

#6

Hey Aymane - completeness portfolio is a tax-optimized strategy for managing a concentrated equity position. Basically, from the partial sale of some of the stock, added cash and/or any proceeds from taking a short position against the large long stake, you create another portfolio - the completeness porfolio. This new portfolio is designed to have a risk profile, that, when combined with the concentrated position, the overall portfolio has a risk profile (~matched risk factor exposure) that is relativly similar to a broad market index. The completeness portfolio will stay away from investing in the same industry as the concentrated position or really any securities whose performance is highly correlated with that of the large stake. Part of the strategy involves tax loss harvesting, to offset gains from gradually scaling back exposure in the concentrated position over time. Hope this helps…

#7

Core is not necessarily a fully passive index, it can be enhanced index also. Dont get fooled by this. The main point is that the manager is giving discretion to managers for active management and following the benchmark by passive and enhanced indexing. This isnt clear in the text but I have seen some mock test questions expanding on this.

#8

Thanks guys!

#9

not neccessarily. It can be 15-20% and still call it core.

#10

This is true in all the questions I have seen. There is usually a 20% passive and then a 40% enhanced index and then a bunch of active stuff.

The awnser is 60% core in this case.