ETF Portfolio: core & satellite allocation

Before you read this post, make sure you are familiar with the basics of ETF allocation – see this post.

A well document approach, used namely by pension funds & Wealth Managers is usually to have in your portfolio different buckets of investments, corresponding to different objectives & time horizon. If your primary goal is financial freedom (which means wealth accumulation through a different channel than your daily job) you can be interested by the Core & Satellite allocation.

Practically, this means separating your asset allocation in 2 buckets: a core portfolio, in line with your long term objectives, and a satellite portfolio, more more tactical allocation.

This is the method that we currently use. We allocate 80% of the invested assets in the core portfolio and the remaining 20% to other investments.

For the Core Portfolio you may refer to the initial article here, and namely use Robot Advisors to build one in line with your objectives and risk tolerance. It will typically be a mix of broad equity markets and bonds.

As for the Satellite Portfolio, you can include thematic Equity ETFs – we namely allocate to renewable energies or technology – increase emerging market allocation or even commodities.

The Satellite allocation is also the “fun” part of your portfolio. Although the Core allocation needs to respect the strict disciple of balanced asset allocation, minimizing the costs, you may feel the calling for some conviction bets through the Satellite. You can for instance also use the satellite to invest into a sector your are particularly interested in, and which to keep monitoring. Another way of considering the Core & Satellite approach is a method called the barbell allocation. Barbell Allocation consists in allocation a small portion of your investment to risk assets (let’s say 20%) in order to provide performance and reserve the reaming portion (here 80%) to safer investment in order to minimize the overall risk of the portfolio.

Our current satellite allocation includes:

BOTZ US – technology and robotics
TAN US – renewable energy

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