Case study 2: Playing the markets, but playing it safe
A successful businessman was eager to get in on the market action in September 2007, at the peak of the equity bull market. By dividing his assets equally between core and satellite portfolios, he has so far managed to limit his losses in 2008's market turmoil, hence out performing many investors.
While Mr. A. Kumar has a keen interest in the financial markets and a passion for speculation, he is too busy to constantly monitor his investments. He is well aware of the risks inherent in the financial markets.
But in September last year, with stock markets hitting record highs, Mr. Kumar was eager to join in.
"We explained to him that the markets would not move continuously upwards," says his client advisor. "We told him he needed something in his core portfolio that wouldn't fluctuate with the market. At the same time, he wanted products for his satellite portfolio that would give him all the thrills."
After careful discussion with his advisor, 50% of Mr. Kumar's assets were placed in his core portfolio, which contains a defensive absolute return fund.
His satellite portfolio was far more speculative, containing leveraged products, emerging market debt, collaterized debt obligations, and various derivative products.
In the subsequent turmoil that engulfed financial markets Mr. Kumar's satellite portfolio suffered losses, but overall he has so far managed to out perform many investors owing to the stability of the core portfolio.
"Many of our clients are savvy investors with strong views on specific investment opportunities," says Mr. Kumar's client advisor. "While their ideas are often profitable, sometimes the markets can be unfavorable. The Core-Satellite approach seeks to ensure that their wealth will stay on the long-term growth path irrespective of short-term market conditions."
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