Core-satellite investing with Endowus
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Core-satellite investing with Endowus

Updated
30 Dec
2023
published
27 Nov
2023
  • An integrated investment strategy: Endowus advocates a core-satellite investment approach to building a holistic investment portfolio that is most suitable to each individual’s personal circumstances, to meet their future goals.
  • Build a foundation on our core Global model portfolios: Most investors should typically begin with an allocation to the Endowus Global model portfolio, and have a strategic passive asset allocation (SPAA) of equity and bond funds to take advantage of the broad market opportunities and generate long-term compounding returns.
  • Avoid satellite-satellite portfolios: Many robo advisors and digital platforms seem to only provide satellite and tactical portfolios as their main product, and sometimes even stack satellites with more satellite portfolios. It is advisable that all investors begin with a meaningful asset allocation to core portfolios for their essential financial goals before extending their investment holdings to satellite positions.
  • Investing in what you believe in: You can choose to complement your core investments with satellite positions that can be used to provide further diversification opportunities to generate alpha (above market returns) or to express a specific investment view or strategy.
  • Choose a single fund or a portfolio theme: Satellite investing can be done through a single fund on Endowus Fund Smart or our pre-optimised Endowus Satellite model portfolios, spanning across four themes, which include Global Technology, China Equities, Future Trends and Sustainability - Equities.
  • Optimised multi-manager portfolios: The Endowus Satellite Portfolios have been optimised by the Endowus Investment Office to improve risk-adjusted returns and lower costs, while utilising Best-In-Class Funds to construct efficient, multi-manager, diversified portfolios.

Many investors in Hong Kong are interested in investing in the growth potential of a specific market (e.g. China, India, Southeast Asia) or sector (e.g. artificial intelligence, healthcare, energy), and seek a convenient way to be able to do so, effortlessly with expert advice at low cost. The Endowus Satellite Portfolios allow investors to do just this. 

Where do we start?

The first step towards constructing a suitable personal investment portfolio is always about understanding "you". For each of your financial goals, it is critical to assess the priority, timeline, expected return, risk tolerance, amount you will invest, investment preferences, and more.

Start with a core allocation with Endowus Global model portfolios

A core asset allocation, such as with the Endowus Global model portfolios should always anchor any investor’s asset allocation and investment portfolio. 

The Endowus Global model portfolios are a series of 6 portfolios that span across the risk spectrum, each with a different mix of equity and fixed income funds to suit your risk tolerance and return expectations. 

They are designed to be efficient broad market portfolios with hundreds of underlying securities across geographies and sectors for general wealth accumulation needs. 

Key characteristics of Core Portfolios

These portfolios were built by the Endowus Investment Office from the ground-up, with Best-In-Class Funds managed by well-regarded fund managers including Capital Group, PIMCO, Pinebridge, Schoders and T. Rowe Price and you can access these funds at the lowest achievable cost through Endowus. 

The portfolios maintain a strategic, long-term, and top-down passive asset allocation, and are optimised further with our automated rebalancing option when your portfolio has drifted away from its target asset allocation. 

Read more: Introducing Global model portfolios: a core investment for everyone

What is a satellite allocation?

Satellite strategies have several characteristics that make them different from core portfolios.

  • Firstly, they tend to be more concentrated in nature and narrow in exposure, targeting a certain sector, country or theme.
  • Secondly, the investments tend to be tactical or opportunistic investment strategies.
  • Finally, the investments tend to be shorter term in nature and may not be held for a long time. 

Satellite portfolios are used to supplement the core portfolios and are an active decision by the investor to provide further diversification opportunities to try to generate alpha, or to express a specific investment view or strategy. This can be done through a single fund or a portfolio of funds.

Most common satellite portfolios could include narrower investment mandates such as regional (e.g. emerging markets or Europe), single country (e.g. China or US), single sector funds (e.g. technology, healthcare or real estate), exposure to certain factors (e.g. value or growth or smart beta) or themes (e.g. megatrends, artificial intelligence, or water). Diversifying beyond public markets to private markets or other asset classes is also a common satellite strategy.

Investors should bear in mind that satellite investing involves taking on active risk by concentrating higher allocation to a certain asset class, region, or sector, which may result in higher volatility than a strategic asset allocation.

Endowus Satellite Portfolios enhancing flexibility and choice

Endowus Hong Kong offers a suite of Satellite Portfolios including Global Technology, China Equities, Future Trends and Sustainability - Equities to complement their Core Portfolios without having to select from thousands of individual funds.

These Satellite Portfolios are carefully curated, constructed, and actively monitored by the Endowus Investment Office to make the portfolio customisation process easier for our clients. 

We focus on optimising the risk-adjusted returns, diversifying across investment styles and managers, and lowering costs at the individual fund and portfolio level.

Comparing satellite portfolio and core portfolios

Why do many people end up with satellite-satellite instead of core-satellite?

Some investors invest themselves through direct exposure to certain funds, such as unit trusts or exchange traded funds (ETFs), or single stocks and bonds. However, in doing so they often chase after the latest fad or popular sectors, countries, or funds with good short-term performance.

Through banks, brokers, or financial advisors, we are often “pushed” products – ETFs (many of which are active and narrow active funds these days), unit trusts, or investment-linked insurance products – which are often high-cost, ridden with misaligned kickbacks and sales commissions, that might not be the most suitable for one’s goals or risk appetite.

It is interesting to note that some digital wealth platforms or robo-advisors might advise a satellite portfolio as clients' core strategy, with active asset allocations or heavy overweights in certain countries or sectors. In addition, they often compound initial satellite portfolios with even more satellite portfolios, thereby creating a satellite-satellite strategy instead of a core-satellite strategy.

The adviser you choose is important and will determine your ultimate strategy, and therefore your success as an investor.

What's the right way to use Endowus Satellite Portfolios?

As mentioned above, we must always start from the point of view that everybody is different, with different risk appetites and different goals for their investments.

Some investors may not even require satellite portfolios, while for some it might be a 10% allocation while others with a higher risk appetite could be an allocation of 50%. 

Needless to say, it is important to look at one’s overall holdings holistically. It is easy to lose sight of the overall total picture or how these various goals and portfolios are working together towards your common financial goals.

The Endowus Hong Kong platform was created to provide you with a bird’s eye view of your overall portfolio and also allow you to view your wealth by goal or funding source. 

You can utilise our pre-constructed Endowus Satellite model portfolios, or create your own satellite portfolio using Endowus Fund Smart, a powerful, low-cost platform that offers over 200 Best-In-Class Funds, where you can save 50% or more on your investment costs.

Read more:

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Risk Warnings

Investment involves risk. Past performance is not an indicator nor a guarantee of future performance or returns. Projected performance or returns is not guaranteed to materialise. The value of investments and the income from them can go down as well as up, and you may not get the full amount you invested. 

Rates of exchange may cause the value of investments to go up or down. Individual stock performance does not represent the return of a fund.

General risk warnings relating to collective investment schemes 

Before making an investment decision, you are reminded to refer to the relevant prospectus/ offering document for specific risk considerations and related fees and charges.

Funds are not a bank deposit and not capital guaranteed, and is subject to investment risks, including the possible loss of the principal amount invested.  

Some of the funds also involve derivatives. Do not invest in them unless you fully understand and are willing to assume the risks associated with them.

Opinions

Any forward-looking statements, prediction, projection or forecast on the economy, stock market, bond market or economic trends of the markets contained in this material are subject to market influences and contingent upon matters outside the control of Endowus HK Limited (“Endowus”) and therefore may not be realised in the future. Further, any opinion or estimate is made on a general basis and subject to change without notice. In presenting the information above, none of Endowus HK Limited, its affiliates, directors, employees, representatives or agents have given any consideration to, nor have made any investigation of the objective, financial situation or particular need of any user, reader, any specific person or group of persons. Therefore, no representation is made as to the completeness and adequacy of the information to make an informed decision. You should carefully consider (i) whether any investment views and products/ services are appropriate in view of your investment experience, objectives, financial resources and relevant circumstances. You may also wish to seek financial advice through a financial advisor or the Endowus platform and independent legal, accounting, regulatory or tax advice, as appropriate.

No invitation or solicitation

Nothing contained [in this article] should be construed as a solicitation, an offer to buy or sale, or recommendation, to acquire or dispose of any security, commodity, investment or to engage in any other transaction in any jurisdiction in which such solicitation, offer to buy or sale would be unlawful under the securities laws in such jurisdiction. No information included [on this website/ in this article] is to be construed as investment advice or as a recommendation or a representation about the suitability or appropriateness of any advisory product or service; or an offer to buy or sell, or the solicitation of an offer to buy or sell, any security, financial product, or instrument; or to participate in any particular trading strategy. Investors should seek independent financial and tax advice before making any investment decision.

Product Risk Rating: Please note that any product risk rating (the “PRR”) provided by us is an internal rating assigned based on our product risk assessment model, and is for your reference only. The PRR is subject to change from time to time. The PRR does not take into account your individual circumstances, objectives or needs and should not be regarded as advice or recommendation to purchase, hold or sell any fund or make any other investment decisions. Accordingly, you should not solely rely on the PRR in making your investment decision in the relevant Fund.

Complex Products

Some of the funds contained in this article are complex products and investors should exercise caution when investing in these products. Though these products have been authorised by the SFC, authorization does not imply official recommendation. SFC authorization is not a recommendation or endorsement of a product nor does it guarantee the commercial merits of a product or its performance.

This advertisement has not been reviewed by the Securities and Futures Commission or any regulatory authority in Hong Kong.

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