Core plus: Investment Strategy, Examples, Pros & Cons

Core plus is an investment management style that permits managers to augment a core base of holdings within a specified-objective portfolio with instruments that have greater risk and greater potential return. Funds that utilize this strategy are called core-plus funds.

Core plus investment strategies are primarily associated with fixed income funds. They give a fund manager some flexibility to enhance returns from investments beyond the core objective of a fund. The securities used for these extra returns are typically also fixed-income investments, often riskier but potentially more rewarding than the fund’s core holdings.

Investment advisors in a core plus fund will build its primary assets specifically around securities that meet a specified objective. This portion of the portfolio is designed to be maintained as a long-term investment, with the intention of holding securities virtually forever. Such holdings might represent as much as 75% of the portfolio. The remaining balance would then consist of higher-risk holdings, which may have shorter investment horizons than the core components of the portfolio. As such, a portfolio’s core investments would represent a solid foundation to which more aggressive, diversified investments could be added.

Core plus funds offer managers the flexibility to invest in higher-risk assets beyond the core holdings, potentially aiming for higher returns. Traditional core funds typically stick to a predetermined set of investments without the flexibility to deviate from the core strategy.

Core plus funds may not be suitable for conservative investors as they often involve higher levels of risk compared to traditional core funds. Conservative investors may prefer investments with lower risk profiles.

Core plus funds may be suitable for investors who are willing to accept higher levels of risk in exchange for potentially higher returns. These investors typically have a higher risk tolerance and a longer investment horizon.