CFAI AM 2008 Q23… Why is 20% invested in index/enhanced enough to make this fund of funds a core-satellite? Is there a range specified in the literature somewhere? Or CFA exams that show mins and maxes? I couldn’t find anything in the book. The example seems to show around 40-60%… So for this question I answered B, incorrect (that it is a core-satellite portfolio) because too little of the portfolio is passively invested. Thoughts?
Using CFAI logic, a 95% actively managed portfolio with 5% indexed counts as core satellite.
agreed iwht bulldog…the real b*tch of it is which portion is considered CORE and whihc is satelite. If you have 95% active, 5% passive, I would say your core is the active piece…but i think CFA says the core is ALWAYS the passive, no matter the %'s.
Core is always the passively managed because that’s the one that mimics the index ( closest). It does not mean Core is a significant part , just that it is the one that mimics the style
I’m starting to think that its the order that matter. If you FIRST invest in passive/enhanced and then you add active funds around that then its core-satellite. But if they first invest in the active funds and add passive/enhanced to reduce debt then its a completeness fund.
ellagold99 Wrote: ------------------------------------------------------- > I’m starting to think that its the order that > matter. If you FIRST invest in passive/enhanced > and then you add active funds around that then its > core-satellite. But if they first invest in the > active funds and add passive/enhanced to reduce > debt then its a completeness fund. I disagree. If the total fund matches the risk exposures of the benchmark after they invest in the passive portfolio, then yes. Simply adding a passive portfolio in and of itself will not accomplish this.
ellagold99 Wrote: ------------------------------------------------------- > I’m starting to think that its the order that > matter. If you FIRST invest in passive/enhanced > and then you add active funds around that then its > core-satellite. But if they first invest in the > active funds and add passive/enhanced to reduce > debt then its a completeness fund. I think you are overthinking this.
If you have a high risk tolerance, you can have a core that is very small relative to the active part of the portfolio.
smokin’hot Wrote: ------------------------------------------------------- > If you have a high risk tolerance, you can have a > core that is very small relative to the active > part of the portfolio. High risk tolerance does not imply high active risk tolerance according to the book. People can have extremely high risk tolerance and still be scared of active management. They must have a high tolerance to ACTIVE RISK.
Everyone is certainly overthinking this. passive core, active satelittes. Core should be reasonably large, but there is no quantitative measure of "large enough. You have to understand what they are trying to accomplish and use your judgement. That’s the story.
again there a question on this in CFAI 2010 mock; having a low % in index finds indicates a high risk tolerance (more active management) but it still considered a core-satellite