Core-satellite strategy can reduce risk
A dynamic core-satellite investment approach can control risk while boosting portfolio returns, according to research conducted by the EDHEC-Risk Institute.
The research, produced as part of the Amundi ETF research chair on 'Core-Satellite and ETF Investment', was built on the knowledge that momentum and value are the ideal strategies for managers seeking outperformance. While dynamic asset allocation strategies can produce superior returns, they also carry a high risk, according to the research. However, the risk can be tempered through the use of a core-satellite strategy.
The authors found that exchange-traded funds (ETFs) were the best investment vehicle for the strategy, because they offer broad exposure to the market, are highly liquid, and adapt well to the frequent rebalancing required in a dynamic core-satellite approach.
Additionally, the use of ETFs that target sectors rather than specific stocks can keep a check on downside risk, according to the EDHEC-Risk Institute study.
The research was conducted by Elie Charbit, Jean Rene Giraud, Felix Goltz and Lin Tang of the EDHEC-Risk Institute, one of Europe's leading business schools.
Amundi ETF offers over 100 ETFs and had $9.9 billion in assets under management as of 31 July 2011.
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