CFA CFA Level 3 Core-satellite portfolios

Core-satellite portfolios

  • This topic has 3 replies, 3 voices, and was last updated Oct-18 by mitch895.
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    • mitch895
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      Hi,

      Does anyone know if the CFAI have a guideline as to what level of funds need to be invested in the market/index (with remainder in actively managed strategies) for it to be considered a “Core-Satellite” portfolio?  I.e, if we had 30% invested in the index and 70% active would this still be core-satellite?  I didn’t see anything in the curriculum, though I could have missed it.

      Cheers,

    • Stuj79
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      @mitch895

      I came across a question like this, can’t remember if it was in Schweser or a CFAI one, but the set up was exactly that….around 25% in a passive portfolio, with the rest spread across 3 active managers. The question was “can this be considered a core-satellite portfolio”. One of the answers was actually “no, because too little is invested in the passive portfolio”….

      I chose this answer and…got it WRONG!! According to the answer it was still a core satellite set up.

      However just yesterday I was reading through Equity portfolio management and it described a core-satellite portfolio as being “the majority invested in a passively managed portfolio, with the remainder actively managed”…not the exact words but they did mention the word “majority”.

      So yeah, to sum up…I’m a little unsure too. I think for the exam I will consider any portfolio with a passive and actively managed element to be a core-satellite irrespective of the amount allocated to each.

    • Arbitrageur
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      Stuj79 said:
      @mitch895

       I think for the exam I will consider any portfolio with a passive and actively managed element to be a core-satellite irrespective of the amount allocated to each.

      I would say if the passive fund is the largest then it’s a core-satellite portfolio. In your example question did any of the active managers have a higher weight than the passive one?

    • mitch895
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      Hi Arbitrageur,

      Yes, I’m not sure (can’t remember) whether any individual active manager had an exposure larger than the passive portfolio.  I do know that in the question the passive portfolio was well below 50% (may have been 30% or so).  Can’t recall where exactly it was (may have been an old CFA Mock exam).  I think the ambiguity and inconsistency of the definition (as @Stuj79 and I seem to have had similar but opposite errors!) suggest that an answer with explanation for either Yes/No would probably be acceptable in the AM.  

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