INSIGHTS
By
John Tabb,
Chief Operating Officer
Nov 18, 2025
Core-satellite strategies are making a comeback as income portfolios face fast-changing markets. Think of the core as your crust, stable and reliable, while satellites add adaptable “toppings” to boost income and flexibility.
Intro
Let’s get something out of the way upfront: comparing portfolio construction to making the perfect pizza might sound a little crazy. But bear with us, because when you think about what really makes a great pizza (and a great portfolio), the analogy is surprisingly spot-on.
If building income portfolios used to feel like crafting a familiar, time-tested recipe, today it feels more like managing a kitchen where the ingredients you rely on shift in quality, availability, and cost without warning.
Your core ingredients, the traditional income portfolio, are still essential. They’re the crust of your portfolio pizza: dependable, well-understood, foundational, and built from diversified bond allocations, dividend-paying equities, and other long-term income sources.
But the market environment surrounding that crust? That’s where the turbulence lies.
Rates rise and fall quickly. Inflation pressures persist. Credit spreads widen or tighten unexpectedly. Traditional income holdings face new headwinds and can’t always adapt fast enough.
So the real challenge isn’t rebuilding the crust—it’s choosing the right toppings to handle a constantly changing marketplace of risks and opportunities.
That’s where the core/satellite framework becomes valuable again.
The New Reality of Income Investing
Traditional income holdings still play a vital role, but today’s environment creates new pressures that static allocations struggle to manage:
Yield pressures — core bond funds often deliver lower income than clients expect in certain rate environments.
Interest rate sensitivity — rapid rate moves can create volatility in bond-heavy allocations.
Limited adaptability — traditional portfolios don’t easily adjust to inflation shocks, policy shifts, or global disruptions.
Advisors don’t want to reinvent the foundation, they just need to reinforce it.
Think of it like a pizza you’ve spent years perfecting. The crust stays the same because it works.
But when the market equivalent of supply shortages, unexpected flavors, or shifting cooking conditions hit, you need the ability to adjust the toppings quickly without scrapping the entire recipe.
What Is a Core/Satellite Strategy?
A core/satellite strategy splits a portfolio into two complementary parts:
The Core (70–90%): stable, diversified, long-term, lower cost
The Satellites (10–30%): tactical, flexible allocations designed to adapt and enhance outcomes
This framework dates back to the 1980s, when institutions used it to balance low-cost index exposure with targeted active strategies. Today it remains widely used across pensions, endowments, and wealth managers.
And perhaps its greatest strength?
It reinforces what already works rather than replacing it.
The crust, the traditional income portfolio, doesn’t change. The toppings, the satellite sleeve, can evolve as markets shift.
Why Advisors Are Returning to Core/Satellite Design
Here’s where the analogy becomes most helpful. In a pizza kitchen, the crust provides stability, but the toppings give you flexibility. You can’t always control your oven, the weather, or the ingredients that arrive—but you can adjust what you put on top to ensure the result still works.
Similarly, satellites help advisors adjust to evolving markets without dismantling their core:
1. Capture opportunities beyond traditional bonds
When credit markets dislocate or alternative income sources become more attractive, the satellite sleeve can explore them.
2. Enhance income potential
Some tactical income strategies seek higher distributions than traditional core bond holdings.
3. Improve adaptability
Markets shift fast. Satellites allow advisors to tilt, rotate, or rebalance around rate changes, sector dynamics, or yield opportunities without disrupting the core.
4. Diversify income sources
By expanding the drivers of return beyond bonds and dividend stocks, satellites may help smooth volatility.
It’s a structure built for environments where “set it and forget it” may no longer be enough.
What Belongs in a Satellite Sleeve Today?
This is the part of the strategy where advisors can be thoughtful and tactical—selecting complementary ingredients that make the entire portfolio more resilient.
Common satellite candidates include:
Tactical or opportunistic income strategies
Multi-asset income allocations
Credit opportunities
Alternative yield sources
Closed-end funds (CEFs)
CEFs are particularly interesting in today’s landscape because their design aligns well with what advisors seek in a satellite: adaptability, income focus, and the potential for tactical advantages.
Where Closed-End Funds Fit Into the Picture
CEFs bring several characteristics that can make them useful in a modern satellite allocation:
Fixed capital structure — CEFs don’t issue or redeem shares daily, allowing managers to stay fully invested throughout market cycles.
Leverage for yield enhancement — Many CEFs use modest leverage, enabling them to potentially amplify income compared to traditional open-end structures.
Consistent distributions — Many CEFs pay monthly or quarterly distributions aligned with investor income needs.
Discount opportunities — Because CEFs trade on exchanges, they can be purchased at discounts or premiums to NAV, creating tactical entry points.
These features make CEFs a natural “topping” for a satellite allocation—adding flavor, flexibility, and structure that te crust alone can’t achieve.
But they also introduce complexity.
Why Many Advisors Avoid Satellites, Even When They See the Value
Just as a chef must carefully manage ingredient quality, cost, and seasonal availability, advisors navigating a satellite sleeve must handle:
research across nearly 500 CEF
monitoring leverage, distributions, and discount volatility
execution discipline to navigate market pricing
tracking rate movements and manager performance
It’s not that the satellite concept is difficult—it's that doing it well is operationally intensive.
This is why many advisors stick with a traditional income portfolio avoiding adding a satellite allocation altogether—they lack the time, tools, or bandwidth to manage the moving parts.
But that’s also where professionally managed tactical income allocations (including CEF-focused approaches) can fit into a core/satellite structure without requiring advisors to take on the day-to-day oversight themselves.
A Strategy Built for Today’s Market Environment
The traditional core income portfolio remains essential—just like the crust of a great pizza. But in a market defined by rapid interest rate shifts, inflation surprises, and ongoing global transitions, portfolios need adaptability layered on top.
A core-satellite approach lets advisors:
preserve the stability of the core
respond quickly to evolving market conditions
diversify income sources
tactically pursue opportunities as they arise
It’s a modern approach that respects the strength of traditional portfolio construction while acknowledging that today’s environment demands something more flexible.
The crust never changes.
But the toppings can—and in today’s markets, they often should.
Next Step: Learn More
For deeper analysis, including historical comparisons and examples of how tactical allocations have impacted income portfolios, download the full research paper:
Download our free guide:
Modern Approaches to Income Portfolio Design: Exploring Core/Satellite Strategies
It provides advisors with a practical blueprint for strengthening income portfolios using a modern, adaptable framework.
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