Investor Corner/Building and judging a portfolio/Portfolio Construction & Behaviour
3.1.9 Core-Satellite Approach
A core-satellite approach builds a portfolio around a low-cost core, usually index or large cap funds, with smaller satellite positions in higher-conviction active or thematic funds layered around it.
The structure explained
The core, typically the majority of the portfolio, is invested in broad, low-cost, diversified funds that are expected to reliably capture overall market returns over time. The satellite portion, a smaller slice, is invested in more concentrated, higher-conviction bets, whether that means an actively managed fund, a sector fund, or a specific thematic idea the investor believes in.
Why this combination works well for many investors
The core provides a dependable foundation that should perform reasonably well even if every single satellite bet turns out to disappoint. The satellite portion provides room to express genuine conviction or pursue a specific opportunity, without risking the entire portfolio's outcome on that single idea being correct.
Sizing the satellite portion sensibly
There is no universal rule for how large the satellite portion should be, but keeping it meaningfully smaller than the core is what preserves the approach's central benefit: even a satellite bet that goes badly wrong should not be able to derail the portfolio's overall result.
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