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QuantSchool: Core-satellite strategy

A Blended Approach to Portfolio Construction

The core-satellite strategy combines stable, long-term holdings with tactical opportunities to balance reliability and outperformance.

Strategy Components

1. Core Portfolio (60-70%)

• Composition: Broad market ETFs, index funds
• Purpose: Market-matching returns, stability
• QuantWave Tools: Macro trend analysis, correlation matrices

2. Satellite Portfolio (30-40%)

• Composition: Active strategies, thematic investments
• Purpose: Alpha generation, diversification
• QuantWave Tools: High-conviction signals, sector rotation models

Implementation Framework

Aspect	Core Approach	Satellite Approach
Holding Period	3-5+ years	3-24 months
Rebalancing	Annual	Quarterly
Position Sizing	5-10% per holding	2-5% per holding
Risk Management	Asset allocation	Stop-losses (10-15%)

QuantWave Integration

1. Core Builder

• ETF selection based on cost and tracking error
• Tax-efficient allocation tools
• Automatic rebalancing alerts

2. Satellite Optimizer

• Signal strength ranking
• Position size calculator
• Performance attribution

Advanced Techniques

1. Dynamic Allocation

• Core: 50-80% range based on market valuation
• Satellite: 20-50% counter-cyclical adjustment

2. Satellite Stratification

• Thematic (10-15%)
• Quantitative (10-15%)
• Opportunistic (5-10%)

Common Implementation Mistakes

• Allowing satellites to become too large
• Overlapping exposures between core and satellites
• Neglecting to rebalance during extremes
• Underestimating satellite turnover costs

Performance Metrics

• Core tracking error vs. benchmark
• Satellite alpha generation
• Combined risk-adjusted returns
• Tax efficiency ratio

QuantWave's core-satellite framework provides investors with the best of both worlds: the stability of passive investing and the upside potential of active strategies. By maintaining this disciplined structure, portfolios can participate in market growth while strategically pursuing outperformance opportunities.