Core-satellite investing ⚛

I couldn’t find a thread specifically on core-satellite investing, so I wanted to start a discussion. I’m sure many people here use this strategy in some guise and others could benefit from it too.

For those who are unfamiliar with the concept, core-satellite investing seeks to capture the best of both passive and active management.

Some detailed guides are linked below but this picture summarises it neatly:

Using my own portfolio as an example, I currently have roughly 65% in passive all-world trackers. The rest is in investment trusts which I use as active satellites: eg SMT for growth, JGGI for income, MWY for quality, HVPE for private equity, JMG for emerging markets, NAS for small caps and ATT for tech.

I prefer trusts for the active element due to the opportunity to buy them at a discount to NAV and gearing which should amplify long-term returns, but you can use ETFs instead.

Here are some of the advantages of this strategy as I see them:

  • Cost: Some of the trusts above have hefty 2%-plus ongoing fees but the passive core reduces the weighted ongoing cost of my portfolio to around 0.40% in total, which I think is great value.

  • Volatility: A big chunk in passive trackers should lower volatility. You could add satellites to gain exposure to assets, eg gold or bonds, which perform better in different conditions.

  • Beginner Friendly: This strategy can be forgiving if, or rather when, you get something wrong. I’ve been investing for more than 15 years and still have lots to learn, so I think of the passive core as a hedge against myself. As I gain experience, I’m gradually increasing the active element towards 50-60% and, eventually, I may add a handful of individual stocks to the mix.

  • Diversification: You can get passive exposure to most things nowadays but active investments offer a wider array of options, such as direct exposure to renewable energy projects. Closed-ended funds are also a better vehicle for less liquid holdings like private equity.

  • Performance: While you could under or outperform with this strategy, a passive core will at least guarantee that a big proportion of your portfolio achieves the same return as the broader market. Active management could also be preferable in certain circumstances – such as for small caps and emerging markets – where, in theory, inefficiencies make it easier to beat the market.

I think the biggest problem with core-satellite investing is that your portfolio can become complex and, if you’re not careful, you could end up with a relatively expensive, quasi-tracker which underperforms.

However, I think this can be negated by keeping costs in check as well as planning exposure to different assets, sectors, managers, factors, geographies and underlying companies.

You can also mitigate this risk by seeking out a relatively high ‘active share’ from your satellites, ie minimising overlap with core investments or other indices.

All in all, I’m a big fan of the flexibility this strategy provides to strike a balance between passive and active approaches. As with many other things in life, I think the middle path is often best.

What are your thoughts on core-satellite investing? Have I missed any of the major pros or cons? How do you implement it within your own portfolio?


Ramin @ PensionCraft talks about the Core-Satellite model quite a lot and I think sums it up best with:

The purpose of the satellites is to stop you touching your core

I think this is good, if we can satisfy our curiosity/ desire to meddle with a small part of our portfolio while keeping the majority in a low cost diversified tracker(s) then the risk of some slight underperformance on satellites is a small price to pay to keep our hands occupied.


Yes this is the approach I take and it does as you say allow for a bit of tinkering or ‘fun’ without screwing the whole thing up!


Yep this is my strategy, also around 65% passive vs around 35% investment trusts, the latter mostly for income.

I’ve got a lot of ITs, ranging from global equity, UK equity, renewables, infrastructure etc. Perhaps too many but am happy with the mix and the income i get (currently reinvested).


I heard Ramin say that and it really struck a cord with me! I know myself well enough to know that I will want to change things around and fiddle with my investments. Restricting myself to the satellite and keeping the core simple and straightforward should keep that tendency under control!


I do a sort of similar thing but I also split them onto different brokers so that I regularly look at my satellite portfolio but autoinvest and almost forget that my core even exists.

That said my core sounds a bit like your satellites and my satellites are mainly individual companies.

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I think that is the key advantage with core-satellite investing – it allows you to tinker, explore more exotic investments, make mistakes and learn – all without having a major negative impact on your portfolio.

I’m concerned about this too. I don’t want it to become like collecting stamps, so I’ve set a target allocation of at least 5% in each satellite. I think that’s just enough to make a meaningful difference but not enough to wreck my portfolio if/when something goes wrong.

It focuses the mind on whether I really want to add another holding too. For example, I considered CHRY but wasn’t prepared to go to 5% as it’s so concentrated – thankfully, I dodged a bullet!

I also avoid doubling up on AIC sectors, with the exception of global growth where I have SMT, MWY and may add AGT. In the long run, those three will move from satellites to part of my core.

My target is also 5% is per IT - a couple have strayed close to 6% recently (BCPT and HICL) due to their share prices going up but I’ll just keep an eye of them and if need be, trim/sell those and top up others.

Interesting what you say about focus - I have a couple that are around the 2-3% mark and I’m reluctant to increase up to 5% for various reasons. Now I’m wondering if they should be in my portfolio at all!

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I do have some that are below 5% currently but I am gradually increasing them all to at least that mark. That feels like an appropriate level of conviction but there are always exceptions.

If a trust has a narrow focus, eg BSIF or UKW as opposed to TRIG or JLEN, it’s probably preferable to set the bar lower. I’m not opposed to doubling up in other sectors eventually but I’d have to good reason. 2.5% each in BSIF and UKW might be an example as they would complement each other, but I’ll probably keep it simple by putting 5% in JLEN as I’d also gain exposure beyond wind and solar.

I intend to let my trusts run to an extent while limiting them to no more than 15% each. I’d be interested to hear about similar ground rules others set themselves in terms of managing their own portfolios.


Do you mean 5% of your total portfolio or 5% of your satellite portfolio? I’m guessing that it’s probably your total portfolio as you listed 5 trusts and a core of 65%. I’ve got a lot less per-satellite than that but then I’m just starting out and I’m planning to concentrate my investments over the next few months.

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5% of my Sipp, less on a cross-portfolio basis. Some are new positions and make up 2/3% but I’m building those holdings towards a minimum of 5% each. I think it’s wise to take your time concentrating your investments – you will make mistakes as a beginner, so it’s prudent to ensure they’re less costly.

That’s another random rule I set myself: I like to treat my Isa as an entirely separate pot. There are pros and cons but I do question the logic of thinking in silos like this.

I think it’s OK as long as you keep an eye on the bigger picture and take a nuanced approach to ensure you’re not overexposed to say private equity because you’ve bought it in three different accounts.

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I’m pretty set on getting to a 4% ish allocation for each of my ‘satellites’. Now if I could just do something about the space junk floating around I’ll be in good shape!

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I see the logic in your strategy.


Over the course of your investments the +/- of 100% core VWRL or similar VS core plus satellites would be miniscule, like 1% tops in either direction.


You could get 95% of the result with 1% of the effort.

I’m using arbitrary numbers here to make the point but I think the logic is there.

I actually do a similar thing to you with core and then some trendy thematic etfs because I get sucked into the popular narratives. Overall my portfolio is tracking below a 100% VWRL folio and if it was to out perform the benefits would be negligible takng time and stress into account!

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This is a good point, it is important to consider the opportunity cost and the danger of building an expensive ‘closet tracker’ which underperforms the market.

However, while my portfolio has underperformed VWRL by about 7% over the past year, it’s outperformed by around 3% annually over the past five years.

I think the key is making sure your holdings differ from the index. This is why I’ve added trusts that offer things VWRL doesn’t such as small caps and private equity.

I also try to minimise overlap wherever possible. For example, I wouldn’t add FCIT as a satellite because it’s too similar to the index for my liking. SMT on the other hand has a 95%ish ‘active share’.

Gearing is another key differentiator: the active part of my portfolio is effectively leveraged which will magnify losses but should also amplify gains in the longer run.

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Yea SMT is a good fund, especially for those that rode the 2020 wave comming into retirement. I bet people couldn’t believe their luck! Probably quite a few retired early!