What Is a Core Holding?

Core holdings are the central investments—or sometimes the sole part—of a long-term portfolio. It's essential that the holdings have a history of reliable service and consistent returns. A common strategy is to hold an asset that tracks the overall market for an extended time horizon, such as an S&P 500 index fund, and augment it with specific stocks or exchange-traded funds (ETF) for an opportunity to gain better risk-adjusted returns.

The secondary investments that are part of such a portfolio are called satellite or non-core holdings, meaning they focus on areas of the market poised to outperform like growth stocks or specific sectors. A thoughtful core holding provides investors with the flexibility to take risks on investments in other areas of the portfolio.

Key Takeaways

  • Core holdings are the main components of a long-term portfolio; they should be stocks, funds or ETFs that are consistent and reliable.
  • An ETF that tracks an index fund or a group of tried-and-true blue-chip stocks are examples of core holdings.
  • Core holdings don't make up the entirety of a portfolio; they are typically held alongside secondary investments that target a specific sector or industry group.

Understanding Core Holding

Core holdings in a well-diversified portfolio tend to outperform a portfolio consisting entirely of growth stocks. Most empirical research has found stock pickers perform much worse than a diversified portfolio of index and sector funds. The core holdings portfolio benefit from stable growth in the safe sectors and growth opportunities in non-core investments. This strategy also builds a portfolio that is easy to monitor and rebalance, as it only contains a few investments. Furthermore, investors can expect less volatility and drawdowns than in an actively managed portfolio. This will help limit the negative effect of taxes and trading commissions on returns.

A large-cap stock fund, such as an S&P 500 fund, is a great example of a core holding that you might have in your portfolio.

Example of Core Holding

There are many ways to identify the core holdings of a portfolio. If, for example, an investor buys and holds blue-chip stocks or funds, that would be considered the investor's core holdings. Core holdings often consist of index funds like the Dow 30 and S&P 500 but some individual stocks can anchor the long term performance of a portfolio. These names may include Apple (AAPL), Amazon (AMZN), and Google (GOOGL). Each company has performed well for over the past decade and should remain competitive for the coming years. 

Ideally, a core holding constitutes the "buy-and-hold" segment of your portfolio, an investment that you can count on for the long term.

Common Attributes of Core Holdings

Investors view core holdings as a critical instrument in the long term performance of their portfolio. Therefore, assets considered a core holding must share some characteristics. For one thing, they should have a track record of redistributing excess profits to shareholders through buybacks or dividend payments. This means the company records consistent earnings growth each passing quarter. Other aspects to consider include high market share, strong brand recognition, and future growth opportunities. When companies introduce new products or expand into a new market, it often leads to increased growth potential and greater stock returns.