FPC008 Investment Advice - Assignment 2

Question 6 Core-satellite versus blended approach
(23 marks | Word limit: 900 words)

(a) On his second visit, Tex tells you he has done further reading on portfolio construction and wants more information about the core-satellite approach and the style-blending approach. 

(i) Provide a brief description of these two strategies and, with reference to Tex’s current portfolio, explain and justify whether a core-satellite or style-blending approach is currently being used for each of the asset classes in which he is invested. (4 marks)

(ii) With reference to Tex’s needs and objectives and personal preferences, provide a brief discussion on which asset classes in his SAA would be more suited to a core-satellite approach and which would be more suited to a blended approach. Your reasoning should be incorporated in your response. (3 marks)

(b) (i) The Perpetual Wholesale Australian share fund is described as an Australian large-cap value fund. Review information on the fund, such as the PDS, fund profile and website, and describe the key characteristics of its investment process and investment philosophy. (2 marks)

(ii) Do you expect this style of fund to outperform or underperform over the next 12 months? Provide reasons in your answer. (2 marks)

(c) (i) Tex has stated that he is interested in having some exposure to socially responsible funds. Many funds claim to be socially responsible. What are the key characteristics that you would look for when determining whether or not a fund is socially responsible? (3 marks)

(ii) Provide a recommendation for a socially responsible fund listed on the APL that would be appropriate for Tex. Justify your recommendation. (3 marks)

(d) (i) When blending investment styles, it is important that the chosen fund sticks to its stated investment process and style. Discuss style drift and how it can be monitored, and the asset classes in which it is most common. (3 marks)

(ii) Recommend another fund from the APL that could be used in a style-blending strategy. Justify your recommendation. (3 marks)