Satellite (financial)
Encyclopedia
Modern Portfolio Theory
, the Nobel Prize
winning theory of investing, asserts that the primary determinant in the performance of an investment portfolio is how it is allocated among various asset classes. Asset classes are broadly separated by stocks, bonds, and cash. More specifically, these broad asset classes are further subdivided by the market capitalization
("small cap", "mid cap", or "large cap") of the securities in the underlying mutual funds, whether the stocks are growth stock
s or value stocks (see value investing
) and whether the stocks in the funds are of United States ("domestic") based corporations or are based in non-U.S. countries ("international"). Bond funds are subdivided into government bonds or corporate bonds which are, in turn further subdivided by the average length of maturity of the bond (short, medium, or long term). In this nomenclature, satellite asset classes represent a minor portion (typically not more than 15% in aggregate) of an investment portfolio. These are typically mutual fund investments rather than individual corporate stocks or bonds or government bonds. Some examples are emerging markets
stocks or bonds, foreign real estate investment trust
s, or commodities funds. The object of holding these funds is to increase diversification in the portfolio. "Satellites continue to expand their role in portfolios as crucial drivers of diversification and sources of higher alpha potential" Goldman Sachs Asset Management, Market Pulse, June 2008
The author is unable to provide a reference to this article due to its declared use restricted to investment professionals. Prospectus, Goldman Sachs Select Satellite Funds, Goldman Sachs Asset Management, April 29, 2008. "Satellite Strategies Portfolio" http://www2.goldmansachs.com/client_services/asset_management/mutual_funds/u_s_funds/pdf/family_of_funds.pdf, page 8. Help with other references is appreciated.
Modern portfolio theory
Modern portfolio theory is a theory of investment which attempts to maximize portfolio expected return for a given amount of portfolio risk, or equivalently minimize risk for a given level of expected return, by carefully choosing the proportions of various assets...
, the Nobel Prize
Nobel Prize
The Nobel Prizes are annual international awards bestowed by Scandinavian committees in recognition of cultural and scientific advances. The will of the Swedish chemist Alfred Nobel, the inventor of dynamite, established the prizes in 1895...
winning theory of investing, asserts that the primary determinant in the performance of an investment portfolio is how it is allocated among various asset classes. Asset classes are broadly separated by stocks, bonds, and cash. More specifically, these broad asset classes are further subdivided by the market capitalization
Market capitalization
Market capitalization is a measurement of the value of the ownership interest that shareholders hold in a business enterprise. It is equal to the share price times the number of shares outstanding of a publicly traded company...
("small cap", "mid cap", or "large cap") of the securities in the underlying mutual funds, whether the stocks are growth stock
Growth stock
In finance, a growth stock is a stockof a company that generates substantial and sustainable positive cash flow and whose revenues and earnings are expected to increase at a faster rate than the average company within the same industry...
s or value stocks (see value investing
Value investing
Value investing is an investment paradigm that derives from the ideas on investment and speculation that Ben Graham and David Dodd began teaching at Columbia Business School in 1928 and subsequently developed in their 1934 text Security Analysis...
) and whether the stocks in the funds are of United States ("domestic") based corporations or are based in non-U.S. countries ("international"). Bond funds are subdivided into government bonds or corporate bonds which are, in turn further subdivided by the average length of maturity of the bond (short, medium, or long term). In this nomenclature, satellite asset classes represent a minor portion (typically not more than 15% in aggregate) of an investment portfolio. These are typically mutual fund investments rather than individual corporate stocks or bonds or government bonds. Some examples are emerging markets
Emerging markets
Emerging markets are nations with social or business activity in the process of rapid growth and industrialization. Based on data from 2006, there are around 28 emerging markets in the world . The economies of China and India are considered to be the largest...
stocks or bonds, foreign real estate investment trust
Real estate investment trust
A real estate investment trust or REIT is a tax designation for a corporate entity investing in real estate. The purpose of this designation is to reduce or eliminate corporate tax. In return, REITs are required to distribute 90% of their taxable income into the hands of investors...
s, or commodities funds. The object of holding these funds is to increase diversification in the portfolio. "Satellites continue to expand their role in portfolios as crucial drivers of diversification and sources of higher alpha potential" Goldman Sachs Asset Management, Market Pulse, June 2008
The author is unable to provide a reference to this article due to its declared use restricted to investment professionals. Prospectus, Goldman Sachs Select Satellite Funds, Goldman Sachs Asset Management, April 29, 2008. "Satellite Strategies Portfolio" http://www2.goldmansachs.com/client_services/asset_management/mutual_funds/u_s_funds/pdf/family_of_funds.pdf, page 8. Help with other references is appreciated.