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Core-satellite

A structure with a large, cheap, broadly diversified core plus small active or thematic satellites intended to add return without dominating the portfolio.

A typical build is 80% in broad index exposure and four 5% satellites: a sector view, a factor tilt, an active manager, and a tactical position. The core defines the portfolio's behaviour; the satellites are where any active risk is deliberately spent.

The structure keeps the cost of being wrong bounded. A satellite that underperforms its benchmark by 20% costs the portfolio 0.05 x 20% = 1%. That is survivable, and it makes it easier to close a losing satellite than a position that has become half the portfolio.

It also makes fees legible. If the core costs 0.07% and the satellites average 0.80%, the blended fee is 0.80 x 0.07% + 0.20 x 0.80% = 0.22%. See total-expense-ratio and active-share.

Related: asset-allocation, diworsification

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