What is the primary objective of a 'core-satellite' asset allocation approach?

Question: What is the primary objective of a 'core-satellite' asset allocation approach?

Answer options:

• To only invest in a single, highly concentrated asset class. ✅ To allocate a large portion of the portfolio to passive, low-cost investments (core), and a smaller portion to actively managed, higher-risk strategies (satellites).
• To exclusively invest in alternative investments for the entire portfolio.
• To frequently trade between developed and emerging markets based on short-term forecasts.

Correct answer: To allocate a large portion of the portfolio to passive, low-cost investments (core), and a smaller portion to actively managed, higher-risk strategies (satellites).

Explanation: The core-satellite approach combines both passive and active management. The 'core' typically consists of broad market exposure through low-cost index funds or ETFs, while 'satellites' are actively managed investments designed to enhance returns or provide diversification.