ETF Core/Satellite approach to ETF investing

Hey guys, Just wondering if anyone would be interested in sharing their strategies in terms of Core-Satellite investing. I understand the gist of the strategy and below is a brief explanation for anyone who maybe interested.

Core-Satellite investing is an approach which combines a portfolio of indexed funds alongside a satellite component of actively managed funds, which can provide above benchmark returns.

In essence, you build up a core exposure to an asset class to capture market return and then add to this with satellite additions to provide the 'alpha' on top. If, for eg, you were investing in Australian Shares you may place 70% into a plain-jane index fund to match the index (or use an ETF) and then say ok, well that will capture the market, lets aim to beet it using a couple of long/short managers, high conviction boutique players or indeed a selection of direct shares.

In stems from the fact - alot of active managers fail to beat the benchmark. For example, over the five years to 30 June 2005, only 31 per cent of retail Australian equities funds consistently outperformed the benchmark and only eight per cent demonstrated skill* (this is Morningstar research)

At this point, I have A200, IVV and NDQ as my 'core' holdings with equal funds invested regularly invested. Any suggestions for satellite funds which I should consider adding?

 

I would consider NDQ as your satellite for technology. Others satellite options could include:

1. VGE emerging markets
2. VAE Asia
3. DJRE Real Estate
4. VISM small caps
5. IJH mid caps US
6. IJR small caps US
7. IXI consumer staple
8. VVLU Value
9. Etc

I honestly don't know which ones to suggest. 1-6 could all be considered part of a total market cap weighted approach.

 

@Gabbaking - I agree with @Zenith Chaos - a lot of good names there but depends on. Your core of IVV and NDQ have some crossover of top names if you're okay with that.


as part of satellites you really do have some good options above... the way I look at things is via the monthly metrics from ASX/Chi-X (along with the underlying holdings). For example, here's some of those key metrics for VAE - I like to see improving performance, increasing inflows and trades (sign of popularity), bid/ask spread % lowering (improving tradability of the ETF) but distribution yield is going down and MER not changing in last few years (though some ETFs do see that).



I'd look at these sorts of snapshots but onyl after thinking about what kind of things I'd want to invest in. For me its technology, ESG and gaming as those are things I either work in or have interest in as I'm paying more attention to that sort of thing.

If you wanted to see what the other holdings look like compared to each other let me know and I'll run the scan.

Anyway, hope all of the above helps!