Core-satellite versus completeness fund

Schewser Volume 2, Question 9C AM Session 1:

Two portfolios are used:

#1: -0.1% Active return and 0.01% Active risk (80% allocation)

#2: 2.71% Active return and 4.55% Active risk (20% allocation)

Question asks whether this is a core-satellite or a completeness fund, and answer says is core-satellite because #1 is an index fund and #2 is the active manager.

It also says that “if it were a completeness fund, the allocations should have offsetting active return and risk to achieve more index-like characteristics”.

My problem is that the previous sub-question asked for the combined active return and active risk based on the allocation weights, and result is 0.9% active risk, and 0.46% active return. Isn’t this index-like enough for the allocation to be considered completeness fund?? Could anyone explain where is the limit or how can we correctly distinguish both?


You get a 80% allocation to a fund “index like” (tracking the index almost perfectly at 0.1% active risk and return) and a 20% allocation to an active manager with active return (2.71%) and risk (4.55%). It is close to the textbook definition of core-satellite I think. I would not look at the combined numbers for this one, if you had managers with all low information coefficient that would have been completeness fund but here it is quite clear is it not.