The Core-Satellite approach to investing is the division of a pension fund into a passive part ("Core") and an active part (Active satellite managers). Core-Satellite is extensively used in offshore markets, particularly in the US and the UK, as investors have found that this approach optimally combines the skills of both index tracking and active fund managers.
In Umbono's previous 'Core-satellite' paper (February 2002), we focused on domestic equity. Subsequent to the paper's findings we have been granted permission to perform the analysis on a wide variety of pension funds, ranging from R50m in value to R30bn in value. On average, our analysis has shown that between 30% to 40% of a typical domestic equity pension fund should be placed in an Indexed core.
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