Investment
The Concept of Core/Satellite Investing
First let’s take a look at what Investopedia says about the Core/Satellite strategy of portfolio management.
“Core/Satellite investing is a method of portfolio construction designed to minimize costs, tax liability and volatility while providing an opportunity to outperform the broad stock market as a whole. The core of the portfolio consists of passive investments that track major market indexes, such as the S&P 500, the Russell 3000, the Lehman Aggregate Bond Index and the JPMorgan Government Bond Index. Additional positions, known as satellites, are added to the portfolio in the form of actively managed investments.”
Our version of Core/Satellite varies from the above to some degree. For example Investopedia describes the core portfolio as “passive investments that track major market indexes, such as the S&P 500, the Russell 3000 Index, the Lehman Aggregate Bond Index and the JP Morgan Government Bond Index.”
Passive investments (the Core) in our Preservation Growth and Prudent Growth portfolios consist primarily of lower volatility, dividend paying ‘name brand’ stocks, exchange traded funds, and low cost bond mutual funds.
In Value Plus, our most aggressive account, the core portfolio consists of so called blue chip stocks. These stocks are evaluated and selected using the Graham/Buffet approach of Value Investing. For more click Ben Graham, WarrenBuffet.
Another important strategy used in our management system is ‘Trend Tracking.’ Trend tracking is the use of technical analysis tools including moving averages to determine the overall condition of markets. We analyze macro trends to help us make judgments about whether we’re in a major Bull Market or Bear Market trend.
Trend tracking tools helped guide us to the sidelines before our client accounts were harmed in the 2008 and 2000 – 2002 market selloffs. We transitioned out of the stock market in 2008 and were 100% in cash and U.S. treasuries by the end of September that year. This protected us from the steep decline that took place the rest of the year and into early 2009.
Our three account structures are outlined below.
Preservation Growth – Most Conservative
This is the most conservative of our three risk levels. It holds primarily low cost bond mutual funds and dividend paying exchange traded funds (ETF’s).
This portfolio holds a combination of dividend paying stocks, exchange traded funds and low cost bond mutual funds.
Value Plus – Aggressive Risk
The majority of the portfolio consists of stocks, exchange traded funds and alternative investments deemed by manager to meet the parameters of the Graham/Buffet school of value investing.
In addition this portfolio uses many of the same strategies as successful hedge funds. Value Plus is not a hedge fund, just managed much like one. Strategies employed include but are not limited to margin, short selling, put and call options. Option buying and short selling is limited to no more than 20% of the total portfolio.
Steve Hood – Owner/Manager
Steve is a 30+ year financial advisor with offices in the Ormond Beach/Daytona Beach area. In addition LifePlan Advisors, Inc. maintains a satellite office in the Bend Oregon area.
Disclaimer - The foregoing is not a recommendation for securities purchase or sale, or investment strategy to follow. Investing in the securities markets entails risk.
