Managing investments effectively requires a clear framework to balance stability with growth opportunities.

The Core and Satellite portfolio strategy offers an actionable approach to achieve this balance. By dividing your portfolio into a diversified core and a dynamic satellite, you can optimize returns, manage risks, and align with your financial goals.

Here, we break down this strategic investment framework, actionable tips, and examples to help you structure your portfolio.

What Is a Core and Satellite Portfolio?

At its heart, the core and satellite investment strategy divides a portfolio into two components:

• Core Portfolio: A stable, diversified foundation designed for long-term resilience.

• Satellite Portfolio: A flexible, dynamic component to capture targeted opportunities.

This strategy allows you to enjoy the benefits of diversification while taking calculated risks to enhance returns.

This core and satellite framework is widely employed by top private banks to manage the complex needs of ultra-high-net-worth (UHNW) clients. The core ensures a stable, diversified foundation focused on wealth preservation and steady growth. Meanwhile, the satellite captures targeted opportunities, such as niche sectors, thematic plays. This approach combines stability with flexibility, aligning portfolios with your unique goals and risk profiles.

Step 1: Constructing the Core Portfolio

The core is your portfolio's foundation. It is designed to provide stability and consistent returns across economic cycles. Core investments are typically:

• Diversified: Include asset classes such as equities, bonds, and alternative investments.

• Passively Managed: Low-cost options such as index funds or ETFs.

• Multi-Asset: Exposure to global markets, fixed income, and sometimes private equity or real estate.

Example: For a $2 million portfolio, a typical core might consist of:

• 45% diversified global equities

• 20% fixed income, such as high-grade bonds

• 5% private credit or real estate for alternative exposure

This allocation ensures stability while offering a base for growth.

Step 2: Adding Satellite Investments

The satellite component is where you take targeted risks to pursue higher returns or hedge against specific market conditions. Satellite investments are:

• Tactical: Focused on specific sectors, geographies, or themes.

• Flexible: Can shift based on market views or trends.

• Smaller Allocation: Typically 20-40% of the total portfolio.

Examples of Satellite Investments:

1. Thematic Stocks: Invest in high-growth sectors such as technology or renewable energy.

2. Sector-Specific ETFs: Hedge risks with consumer staples ETFs during economic downturns.

3. Structured Products: Use instruments like yield-enhancing notes to amplify returns or generate income.

For instance, if you believe artificial intelligence will be a long-term growth driver, you might allocate 10% of your portfolio to AI-related equities as a satellite investment.

Benefits of the Core and Satellite Approach

1. Diversification:

   • Core investments balance risks across asset classes and geographies.

   • Satellite investments add exposure to specific opportunities.

2. Flexibility:

   • The satellite portfolio allows you to act on market trends or personal convictions.

3. Risk Management:

   • In bear markets, the core offers stability while satellites can adjust to defensive strategies.

   • In bull markets, satellites capitalize on momentum while the core ensures steady gains.

4. Enhanced Returns:

   • Satellite investments provide opportunities to outperform market averages.

Applying the Framework: A Case Study

Meet Mark and May Mark and May are corporate professionals with a $2 million portfolio. They seek growth but want some income for their financial obligations. Here’s how they apply the core and satellite framework:

• Core Portfolio (70%):

  • 29% global equities through low-cost ETFs.

  • 20% bonds for income and stability.

  • 21% private markets (e.g. private equity and private credit funds) to enhance growth and diversification.

• Satellite Portfolio (30%):

  • 10% technology stocks (e.g., Nvidia, Tesla) for high growth.

  • 10% structured products to lock in a yield of 8–12%.

  • 10% defensive investments (e.g. healthcare ETFs) to balance risk.

After implementing these changes, their portfolio achieves:

• Improved return potential with reduced volatility.

• Enhanced income through structured products.

Enhancing Your Portfolio with Alternatives and Structured Products

Integrating alternative investments and structured products into your core and satellite portfolios can unlock new opportunities for growth, income, and risk management.

• Core Portfolio: Alternatives like private equity, private credit or real estate can diversify your core, offering enhanced return potential with lower correlation to public markets. For example, a core allocation with 10% private equity complements traditional equities and bonds, providing resilience across market cycles.

• Satellite Portfolio: Structured products are ideal for the satellite portion, allowing targeted growth or income opportunities. For instance, a structured note linked to stocks with high growth potential can potentially deliver regular high income or amplify upside while offering downside protection, balancing risk in dynamic markets.

These asset classes elevate your portfolio by blending stability with tactical flexibility, aligning well with the core and satellite approach.

How Arta Supports Your Core and Satellite Strategy

Arta offers tools and strategies tailored to building core and satellite portfolios:

1. Core Strategies:

   • Base Portfolios: Automated, globally diversified portfolios customized to your risk tolerance and geographic preferences.

   • Private Investments: Access to private credit and equity funds for stable, long-term growth.

2. Satellite Opportunities:

   • Structured Products: Yield-enhancing, return-amplifying, and capital-protected notes.

   • Sector-Specific Stocks or ETFs: Target emerging trends, sector specific or thematic plays.

3. Expert Guidance:

   • Personalized consultations to align your portfolio with your goals.

   • Access to investment advisors for creating tailored strategies.

With our mix of technology and expertise, Arta empowers you to build a portfolio that’s as dynamic or stable as you need. From automated rebalancing to expert-designed products, Arta ensures your investments work harder for you.

Maximizing Your Portfolio’s Potential

The core and satellite portfolio strategy is a powerful framework to navigate today’s dynamic markets. By balancing a stable foundation with tactical growth opportunities, you can achieve your financial goals with confidence.

Whether you’re just starting or looking to refine your strategy, Arta provides the tools and expertise to make it happen. Explore how you can level up your portfolio today.