For investors who want to fight for structural opportunities for economic growth without being too aggressive, the available funds can be divided into two parts: the large part invests in "core assets" and the small part invests in "satellite assets".

This asset allocation strategy is called "core-satellite strategy".Through the construction of ETF portfolio, the average return is obtained by market index ETF, and then industry ETF and style ETF are used to capture structural opportunities to enhance the income of the portfolio.

What is the "core-satellite" strategy?

Core-satellite strategy (Core-satellite Strategy) has become one of the mainstream strategies of asset allocation in mature markets. The name sounds pretty vivid. Popularly speaking, it is to divide the assets of our investment fund into two parts, put the big head in the "core", and put the remaining funds in the "satellite".

There is only one core, but there can be many satellites. In fact, the strategy is to find a balance between investment security, stable income, taking losses and so on.

Generally speaking, the "core-satellite strategy" is to divide the assets of the fund into two parts:

Some of them account for more weight in the whole investment portfolio and are in the "core" position, which plays an important role in protecting the safety and income of the investment.

The other part accounts for a small weight, assets are more flexible, like satellites, while being constrained, there is more room for investment, which will often bring unexpected returns.

The following is a classic core satellite strategy structure of Vanguard Fund (Vanguard) taking domestic investment in Australia as an example:

The red part of the inner circle is the "Core", which is composed of index funds, while the gray part of the outer circle is the "Satellite", which is made up of other active securities.

Isn't it difficult to exceed the index? Then buy the index, index funds occupy a larger proportion of positions, low frequency of adjustment, small changes in positions. "Stability" is the main feature of the core position, whether it is risk or return. Leave some satellite positions, select the excellent, undervalued and low correlation stocks in the market, and make use of the high elasticity and high performance growth of stocks to contribute excess returns to the portfolio.

Strategic advantages of "Core-Satellite"

1) diversification:A wide range of options, can be included in a variety of asset classes as satellite positions

2）Relatively stable and easy to manage:The performance of index funds has been stable for a long time, the clear proportion of positions limits the influence of human emotion, and the overall volatility is small.

3）Cost advantage:The core position is mainly index fund, and the adjustment frequency is low, which can effectively reduce the management cost and transaction cost of the portfolio.

4）Risk control:Due to the low correlation between different types of assets, the risk of a single class of assets can be significantly reduced.

Three steps in the implementation of "Core-Satellite" Strategy

The implementation of the "core-satellite" strategy mainly includes three steps.

• First, determine the investment objectives and allocate large categories of assets accordingly.

How high is your expected return before investing? What is the risk tolerance? How long is the investment period? After the goal is determined, the allocation proportion in line with their investment objectives can be determined through income risk calculation, matching in asset classes such as stocks, fixed income, commodities, private equity and so on.

• Second, after determining the allocation proportion of large categories, it is necessary to make a secondary proportional allocation of "core-satellite" assets within each category.

Taking the fund investment as an example, it is assumed that through the analysis of the investment target, it is concluded that the appropriate proportion of partial stock funds in the overall fund portfolio is 40%. At this time, investors need to decide how much to allocate to the "core" fund and how much to the "satellite" fund.

If you are optimistic about overseas markets, you can use an appropriate proportion of positions to buy ETF that invests in Hong Kong stocks or US stocks through QDII or Hong Kong Stock Connect.

• Third, after completing the secondary proportional allocation of the "core-satellite" assets, we will specifically determine what funds the "core" contains and which funds the "satellite" is composed of.

Using ETF to realize the "Core-Satellite" Strategy of Combinatorial configuration

Because ETF has the convenience of listing and trading, through the core-satellite asset allocation method, investors can redeploy assets at any time without the need for multiple stock delivery.

ETF, which tracks blue-chip indices, is usually used as a core asset to ensure that core investments do not lag behind the market, while ETF, which tracks industry, style, and regional indices, is usually used as an auxiliary asset for institutional investors, or to increase their holdings in asset classes that are relatively bullish, or asset classes with higher risk-return levels, such as energy stocks, growth stocks or funds.

The classic combination is: the core market ETF follows the economy (core assets) + the industry theme ETF focus leader (satellite assets).Suppose an investor thinks that the main line of China's future economic growth is intelligent technology + consumption upgrading, then he can choose to configure "Shanghai and Shenzhen 300 ETF-Deutsche Bank Castrol + TMT ETF + consumer industry ETF".

In addition, investors can also use some active strategy to construct the core of the portfolio, and various types of ETF can be used as satellite strategies to avoid missing out on other investment opportunities.

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For more information, please follow[ETF Investment Guide]Refer to the special topic. Some of the articles in previous issues are as follows:

• Which US stock ETF is suitable for long-term holding?

• Can it be reversed even against the wind? Make good use of reverse ETF

• ETF operations guide: a "net" in hand, bid farewell to the roller coaster!

• All the investment strategies you need to know about ETF are here.

• Understanding ETF: Buffett's view of the most suitable products for financial rookies to invest

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