Research Library
Core-satellite construction, indexing, the equity-versus-fixed-income decision, diversification, and risk-based portfolio construction.
01 — Core-Satellite Strategy
The core-satellite model splits a portfolio into two functions. The core — typically 70–90% of assets — sits in broad, low-cost index exposure designed to capture the market's return with minimal turnover. The satellite sleeve holds a smaller number of higher-conviction or thematic positions layered on top, where an investor is willing to accept concentrated risk in exchange for the possibility of outperformance.
Because the core absorbs most of the capital, the overall portfolio's cost basis and tax turnover stay low, while the satellite sleeve gives room to express a view without redesigning the whole allocation.
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Core / Satellite
Illustrative split. Actual core-to-satellite ratios vary by mandate and risk tolerance.
02 — Indexing
An index strategy holds a broad basket of securities designed to track a published benchmark rather than selecting individual winners. The appeal is structural: lower expense ratios, lower turnover, wide diversification, and a return stream that is easy to benchmark and explain.
Exposure to hundreds or thousands of issuers in a single position.
Passive management typically carries a lower expense ratio than active alternatives.
Performance is measured against a stated, published index rather than a manager's discretion.
Ownership stake in a business; historically higher long-run return potential paired with higher short-term volatility.
A loan to an issuer with a stated coupon and maturity; generally lower volatility and a ballast role in a mixed portfolio.
03 — Equity vs. Fixed Income
Equities and fixed income are typically blended because they tend to respond differently to the same economic conditions. Equities are the portfolio's growth engine; fixed income is its stabilizer, income source, and — during equity drawdowns — its shock absorber. The ratio between the two is the single most consequential decision in most portfolios, more influential than individual security selection.
04 — Diversification
Diversification is often reduced to "own more than one stock," but the concept operates across several independent axes at once. A portfolio can be diversified by asset class while still being concentrated by sector, geography, or issuer.
Equities, fixed income, cash, and alternatives behave differently across a cycle.
Concentration in one industry ties the portfolio to that industry's specific cycle.
Domestic and international exposure respond to different policy and currency conditions.
No single company or borrower should be able to materially impair the whole portfolio.
05 — Risk Allocation
A dollar-weighted allocation can understate how much risk a single position actually contributes to a portfolio. Risk-based allocation instead asks what share of the portfolio's total volatility comes from each holding, which often reveals that a "small" equity sleeve is doing most of the risk-taking.
06 — Portfolio Construction Frameworks
Run a target allocation through the Rebalancing Tool to check for drift.