This book “Core-Satellite Portfolio Management “by J.Clay Singleton discusses about the asset allocation. One can understand that there two phases in portfolio management that is the core (passively managed) and the satellite (actively managed) portions. In addition to that the components of core-satellite ring are introduced to the reader and how can one coordinate these components to balance one’s portfolio. He makes the reader understand how important is to rebalance a portfolio and allocate risks accordingly so that they are not missing the bus.
A Core Satellite Approach to Portfolio Management
In this chapter the author drives home the vital concept of portfolio management i.e. asset allocation, by explaining how the components in the core as well as in satellite should complement each other in order to generate magic Greek letter –Alpha.
Quantitative Finance
The author throws some light on some of the basic quantitative concepts which would help the reader to understand the concept of correlation and also how diversification would be phenomenal in reducing the portfolio’s risk. Moreover the concepts like efficient frontier are reviewed and explains those underlying assumptions are not perfect reflections of reality. Finally the author stresses on the importance of risk measures and risk monitoring.
Core Equity
In this chapter James A.Pupillo explains the following:
- How to construct the core portion of a core-satellite portfolio for equity holdings
- What factors which one should consider in choosing indices
- Summarizes the key features of popular equity indices from which benchmarks can be customized on weighted basis
- How risk budget is used as a tool for allocating risk between core and satellite positions
Core Fixed –Income Management
In this chapter Kenneth E.Volpert explains the following:
- How one can pick higher quality liquid sectors in the core at low costs
- Explains the different kinds of fixed income risks and suggests tracking error associated with each in various strategies
Satellite Bonds- High Yield and Distressed Debt
By going through this chapter the reader will be exposed to market history and historical correlations of all kind of debt instruments like high yield debt, junk bonds, private placements, collateralized debt obligations (CDO’s) and distressed securities. In addition to that Clifford A. Sheets explains the reader what special skills are required for one to manage these assets and the fee structure expected to manage the same.
Management of currency fluctuations associated with International Investments
The author (Ranga Nathan) deals which the currency fluctuation exposures, how can one handle and manage the same by using currency overlay management techniques. It also focuses on the kind of arithmetic which one should understand about how foreign currency exposure arises and how it’s influenced by economic factors.
Treasury Inflation-Protected Securities
The author (Peng Chen) justifies to the reader why TIPS should be included in satellite portfolio compared to other financial asset classes. It helps us to understand how it works, their return patterns, relationships with those of other asset classes and reviews their history. It also explains how the difference between nominal bond yields and TIPS yields provides a good indicator of market’s aggregate forecast for future return.
Hard Assets
The authors (Pen Cheng, Jeffrey M.Antonacci and Joseph P.Pinsky) focus on hard assets and soft assets which are typically not traded in the exchanges and frequently have a lower liquidity. Moreover direct energy asset classes (oil and gas) are discussed thereby one can understand how this would be beneficial to enhance the risk/return profile.
Finding value in Small Stocks
In this chapter Gary G. Schlarbaum and Bradley S. Daniels give the reader insights about the tools and valuation methodologies required to manage the small capitalization stocks in satellite portfolio.
Risk Measurements of Investment in the satellite Ring of a Core-Satellite Portfolio
In this chapter Hilary Till discusses the following
- Helps the reader to understand the risk return trade-offs that may be present in the satellite ring
- Why sharp ratio has become the main performance evaluation metric for investments and it’s shortcomings
- Several alternative metrics needed for performance evaluation and also helps one to understand the source of returns for satellite investment strategy rather than relying on the performance numbers
Identifying and Adopting Best Practices for Institutional Investors
Here Samuel W.Halpern and Andrew Irving explain some of the best practices like legal, professional, regulatory, operational overview which is followed in the industry and one has abide to all these regulations to be best in the business.
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Tags: book review, Core satellite management, core-satellite portfolio management by J.Clay Singleton, investment alternatives, J.Clay Singleton, portfolio management
According to AlpaClone data on for DE Shaw & Co 20% of their equity portfolio is invested within the Services sector and 20% in Health Care. The total equity value of for DE Shaw & Co is 16B+, their total number of reported holdings is 2351, and over 13.1% of the market value of this portfolio is represented within the top 10 holdings.
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