Core-satellite % anything, specified, invested, literature

Muddahudda

CFAI AM 2008 Q23...

Why is 20% invested in index/enhanced enough to make this fund of funds a core-satellite? Is there a range specified in the literature somewhere? Or CFA exams that show mins and maxes?

I couldn't find anything in the book. The example seems to show around 40-60%... So for this question I answered B, incorrect (that it is a core-satellite portfolio) because too little of the portfolio is passively invested.

Thoughts?

justin88

again there a question on this in CFAI 2010 mock; having a low % in index finds indicates a high risk tolerance (more active management) but it still considered a core-satellite

bkballa

smokin'hot Wrote:
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> If you have a high risk tolerance, you can have a
> core that is very small relative to the active
> part of the portfolio.

High risk tolerance does not imply high active risk tolerance according to the book.

People can have extremely high risk tolerance and still be scared of active management. They must have a high tolerance to ACTIVE RISK.

IAmNeil

ellagold99 Wrote:
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> I'm starting to think that its the order that
> matter. If you FIRST invest in passive/enhanced
> and then you add active funds around that then its
> core-satellite. But if they first invest in the
> active funds and add passive/enhanced to reduce
> debt then its a completeness fund.

I disagree. If the total fund matches the risk exposures of the benchmark after they invest in the passive portfolio, then yes. Simply adding a passive portfolio in and of itself will not accomplish this.

NO EXCUSES

skycfa

Using CFAI logic, a 95% actively managed portfolio with 5% indexed counts as core satellite.

NO EXCUSES