Core-satellite portfolios

Question

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 · Answer

@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 · Answer

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?