What is Core Holding?

Published by Thomas Herold in Investments, Trading

'Core Holding' is explained in detail and with examples in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.

A Core Holding refers to a longer term investment which forms the basis of an investor’s portfolio or a corporation’s assets and operations. Where investments are concerned, one popular strategy for these common cores is to mostly own investments which follow the overall market like the S&P 500. It is through S&P 500 Index Funds that investors are able to participate in this otherwise difficult to acquire and maintain baskets of 500 individual stocks.

Investors might secondarily focus their investment efforts on those holdings which do not show the same results as the market as a whole, like with individual stock holdings. A satellite holding is the name for such secondary types of investments. When investors own a good core holding, they attain the ability to take risks on more volatile holdings in the remainder of their portfolio.

When core portfolio and satellite portfolio holdings are well-constructed, they will generally outperform the results of those rival portfolios based only on a collection of individual stocks. The reason for this is that the majorities of investors are not adept at properly assembling a well- and truly diversified portfolio by only relying on individual stocks. With core and satellite strategies, investors end up owning portfolios which are simple to rebalance and to oversee since they only possess a few different investments overall. Such a strategy is designed to reduce volatility and minimize the negative effects of commissions, fees, and taxes on overall portfolio returns.

Other investors will seek to only have core holdings in their portfolios. These must then be reliable investments which deliver steady and stable returns every year. They would be the key foundation for the remainder of most investors’ portfolios. Noncore holdings would be those that are not central to the overall strategy. They could instead concentrate on a single sector like technology stocks, or on a single overseas region like Europe. Such more specifically focused investments can boost portfolio returns, yet they also likely increase the volatility of the overall portfolio.

The entire U.S. stock markets are completely dominated by a relatively small handful of mega multinational corporations. These huge corporations make up approximately three quarters of the entire stock market valuation. This is why for most investors, their core holdings will have to focus on these same overly dominant stock giants. Large capitalization blend funds are a good place for most investors to start. They own huge companies that boast mid-range stock prices. These companies rarely lead the outperformers list, yet they also do not typically head the underperformers list either.

More conservative investors might prefer a conservatively based large value fund. Such funds plow their investors’ money into the large and extremely established firms whose stocks remain cheaper than their large cap peers. They also commonly concentrate on those firms whose stocks pay generous, consistent, and increasing dividend payouts. These prove to be the lowest risk ranked funds of all the categories which Morningstar follows.

Smart investors will not simply put all of their investment eggs in the proverbial United States’ markets basket. Foreign equity funds are therefore another good core holding choice for most investors because of this critical diversification idea. Such funds will concentrate on the developed markets of the world, as with the MSCI World fund. They will buy the shares of the world’s leading international firms, such as BP Oil, HSBC Bank, Nestle, UniLever, Royal Dutch Shell, Glaxo Smith Kline, Vodafone, Diageo, and Astra Zeneca.

A last recommendation for core holdings centers on solid bond funds. These should be ones that focus on high quality bond issues. Intermediate term bonds are the best ones, since they possess shorter maturities and are not as volatile with regards to interest rate swings as the longer term holdings would be.

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The term 'Core Holding' is included in the Investments edition of the Herold Financial Dictionary, which you can get from Amazon in Ebook or Paperback edition.