Portfolio Structure

We use the Core and Satellite investment structure used by many of the world’s most sophisticated institutional investors and ultra-affluent families.

Affluent investors who rely exclusively on traditional actively managed investment portfolios often:

  • pay unnecessary fees because their managers ultimately do not outperform their benchmarks,
  • pay needless taxes because their managers focus on pre-tax returns, and
  • assume unnecessary risk because they are inadequately diversified.

Our core and satellite investment structure addresses these shortcomings. We believe it is the optimal format for customized diversification, risk management and the pursuit of opportunity in a highly cost and tax-effective manner.

The Core

The core of our portfolios is designed to enhance diversification and deliver asset class returns in a cost and tax-effective manner. It is built around enhanced index and exchange traded funds (ETFs) that focus on deep and liquid elements of the equity markets where there is less mispricing of securities and less opportunity to add value through active stock selection.

The core of our portfolios pursues potential superior returns without exposing an investor to the higher costs and risks of active management. Leading finance academics have discovered that the stocks of firms that share certain fundamental characteristics called “factors” have expected returns that vary from the overall market. For instance, measured over long periods of time, stocks of small companies have earned higher average returns than stocks of large companies. Value stocks – those low-priced in relation to earnings, dividends, cash flow or book value – have exhibited higher average returns than growth stocks. Stocks that have exhibited positive momentum (i.e. have performed relatively well over the past three to 12 months) have outperformed stocks that have done relatively poorly. High-quality stocks that have evidenced superior profitability have had higher average returns than low-quality stocks with a record of poor profitability.

By tilting the core of the portfolio to these factors – small, value, momentum and quality – we can pursue potential superior long-term returns in a highly diversified, cost and tax effective manner.

Benefits of the core:

  • Liquid and transparent
  • Customizable to individual risk parameters
  • Reduces active management risk (e.g. under-performance, unnecessary taxes)
  • Provides broadly diversified global asset class exposure
  • Eliminates unnecessary fees and costs
  • Tax effective
  • Pursues potential superior long-term returns through “factor” exposures

The Satellite

The satellite component affords access to an additional range of asset classes and investment strategies. This allows pursuit of superior returns, improved tax deferral and/or enhanced diversification.

Benefits of the satellite:

  • Enhanced diversification and reduced volatility
  • Higher return potential in certain asset classes and strategies (e.g. private equity)
  • Access to tax deferral structures
  • Higher potential wealth accumulation