A little confused on just a conceptual thing. Say you have a large cap equity composite or a domestic growth composite or something like that and you are looking to add portfolios to it.
By nature, portfolios are diversified (they have various allocations to various sectors and indices). So how do you create a composite with a bunch of portfolios that have lots of exposures to benchmarks/styles outside your composite? You can just pull in the domestic growth portion of your portfolio I believe–isn’t this what a carveout is? But in general, no good diversified portfolio is actually going to be more than 50% in a single sector, so how does this composite construction thing really work? Do you just go by what the mandate is?
I’m just asking this in anticipation of a question which asks if certain portfolios were appropriate to add to a composite.