Skip to main content

A core-satellite approach to investing

Traditional broad market indices, by nature of their composition, are backwards looking and skew the significance to companies with greater relative market capitalisation. Therefore on a forward looking basis, investors may be underexposed to benefit from future disruptors and beneficiaries of secular growth.

The S&P Global Technology Index (in AUD) has returned a cumulative 249.0% in the last 5 years, with Information Technology now constituting 28.7% of the S&P 500 Index’s taxonomy (as at 31 January 2022). The cyclicality of commodity prices, meanwhile, has led to a decline in index relevance from 20.1% to 5.9%, as measured from the peak in early 2008 to date, for both the Energy and Materials sectors combined.

The purpose of this example is not to state the obvious in hindsight, but rather, to highlight the fact that future drivers of growth and earnings that underpin business models must be considered when future proofing portfolios.

Figure 1 – S&P 500 index composition

Figure 2 – Top ETF flows for January 2022

Figure 3 – Top ETF flows for 12 months ending January 2022

Figure 4 – ETF market size

Figure 5 – Average daily volume and value

Authored by Hayden Nicholson – Specialist Exchange Traded Funds & Listed Investment Companies at Bell Potter Securities, 23 February 2022
Important Disclaimer—This may affect your legal rights: Because this document has been prepared without consideration of any specific client’s financial situation, particular needs and investment objectives, a Bell Potter Securities Limited investment adviser (or the financial services licensee, or the proper authority of such licensee, who has provided you with this report by arrangement with Bell Potter Securities Limited) should be consulted before any investment decision is made. While this document is based on the information from sources which are considered reliable, Bell Potter Securities Limited, its directors, employees and consultants do not represent, warrant or guarantee, expressly or impliedly, that the information contained in this document is complete or accurate. Nor does Bell Potter Securities Limited accept any responsibility to inform you of any matter that subsequently comes to its notice, which may affect any of the information contained in this document. This document is a private communication to clients and is not intended for public circulation or for the use of any third party, without the prior approval of Bell Potter Securities Limited. In the USA and the UK this research is only for institutional investors. It is not for release, publication or distribution in whole or in part to any persons in the two specified countries. This is general investment advice only and does not constitute advice to any person.
Disclosure of Interest: Bell Potter Securities Limited receives commission from dealing in securities and its authorised representatives, or introducers of business, may directly share in this commission. Bell Potter Securities and its associates may hold shares in the companies recommended.