# 2011 pm Q23 Core-satellite portfolio

If the weight of passive manager is least among the managers, can you still call a core-satellite portfolio?

In Q23

active manager A 40%

active manager B 40%

passive manager C 20%

I remember in the curriculum the weight of passive manager is higher than 50%

im not sure about percentages but i believe you need a large core to mitigate the active risk of the satelites.

if your core is 20% (s&p500) and satelites are each 40% (small and micro cap), im not sure how the core can mitigate so much active risk.

any other thoughts?

I can not find any limitation on percentage of core (minimum) in curr. That 's also my confuse…

It’s still a Core-Satelite strategy - Low investment in core (passive or semiactive) reflects high risk tolerance

I guess that is the explanation from the answer. Did you find something similary in the curriculum?

this is a BS question and has been discussed to death in recent years - use search

how is 20% considered CORE? crazy, but so goes CFAI theory and wording

I remember one of the schweser practice exam questions mention the core should be at least 50%. any new thought on how to deal with such question in real CFA exam?

Thanks.

Even I was confused with this. But there was a similar question in 2012 PM CFAI mock - question 19

19 The approach to portfolio construction used by the Magnolia Foundation is best described as: A. a core–satellite structure.

B. a portable alpha strategy. C. using a completeness fund.

A is correct because a large portion of the portfolio is invested in a manager who is expected to match the portfolio’s benchmark (zero alpha, zero tracking error), forming the core of the portfolio.

From my understanding, the “core” is the passive portfolio and it does not necessarily matter how big/small it is.

You would think the core-satellite would be an analogy to earth and moons, so the “core” would be the largest, but apparently not so.

This one bothered me alot, the example on pg 235 of book 4 does reference “more than half” as the core as if it has some relevance. The other example has more than 50% of the core which is why I think many are anchored to this number. But there is nothing in the definition that says how much of the portfolio must be active or semiactive. It is really misleading the way it is presented but this begs the question: if 20% can be the core, how about 10%, 5%? Where is the cutoff?

I got hit by the same question. Its quite mind boggling that the idea of core is actually non core…

Anyway the 2011 mock is a real killer for me…

same… got confused with that one - and plenty of other 2011PM questions unfort

Thats one of the reasons I don’t use prep providers but the CFAI text failed me in this case as well.

I also got this one wrong, however the text does repeat the exam’s explanation that a small core could be indicative of higher risk tolerance. I guess we all just need to know that a core doesn’t have to be big neccessarily.