What is core and satellite investing?
Core and satellite investing is an investment approach that balances low-cost, passive investments with actively managed and potentially more expensive assets. You’ll build a well-diversified core portfolio, usually based on a single multi-asset fund, and use satellite funds to tilt that portfolio according to your own preferences.
How does core and satellite investing work?
A core and satellite investment strategy is all about balancing possible risks and possible growth.
A diversified multi-asset fund will sit at the heart of your portfolio. It’s usually a fund that’s designed to provide you with a broad market exposure to a range of different asset types, such as equities and bonds. It should both:
- offer long-term growth potential
- cover a large segment of the market rather than solely focus on individual sectors or georgraphies
For an example of this type of fund check out our Simple Fund Choice range. It offers multi-asset funds that blend exposures to broad market indices such as FTSE All Share. That brings together shares of major UK companies or another FTSE index covering UK government bond market. They could all provide good, well-diversified core exposure.
The satellite funds are other investments that tilt your portfolio towards types of investments that you want more exposure to. They’re often sector-specific funds or country-focused funds.
For example, you might use satellite funds to:
- increase exposure to emerging markets
- focus more on technology or healthcare sectors
- add exposure with explicit Environmental, Social and Governance (ESG) tilt
- take advantage of specific regional growth opportunities
This lets you keep your portfolio simple and cost-effective, while still reflecting your personal views and goals.
How do I build a core and satellite investment strategy?
The split between the core and satellite exposure is often driven by cost consideration and the investor’s conviction in the satellite funds. For example, if an investor wants a greater tilt towards their preferred exposures, they could allocate 60% to a core fund and 40% to their satellite funds. Others might opt for a larger - say, 90% - allocation to the core exposure.
Is a core and satellite investment strategy right for me?
That’s a hard question to answer because, as with many financial decisions, the best way forward depends on your personal goals and circumstances. If you’re thinking about a core / satellite investment approach, these pros and cons could be a good starting point:
| Pros | Cons |
| It can be an efficient way of balancing returns and risks from passive and active investing | There’s no guarantee that your satellite investments will do better than your core ones |
| It’s very flexible – you can customise it for almost any timescale or risk level, and adjust it as you go | You’ll have to put time and effort into researching and managing your non-core investments |
| With lower fees, core portfolio gains can compound effectively over time | You might have to pay higher fees and charges for satellite funds if they are actively managed |
| You’ve got a stable core and can grow your satellite investments over time as your confidence builds | Financial markets and broader economic cycles can be hard to predict and respond rationally to |
We asked Andrzej Pioch, one of our investment experts, for his thoughts on the core and satellite investment method. He told us:
How to get started
- Check your current holdings to identify a suitable core fund
- Explore satellite options that align with your views or goals
- Rebalance your portfolio accordingly, then keep a close eye on how it does
It’s very important to remember that the value of investments can go down as well as up. You may get back less than you invest. Diversification doesn’t guarantee returns or eliminate risk. And finally, the past performance of any funds you choose doesn’t guarantee a similar future return.
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What are multi-asset funds?
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