Actively Manage a Portfolio With Low-Cost Passive ETFs

In today’s dynamic economic and investment environment, financial advisors have an opportunity to demonstrate real value to clients by using passively managed ETFs within an actively managed, customized strategy.

Instead of relying on higher-cost, active ETFs and outsourcing performance generation to fund managers, advisors can construct and manage portfolios tailored to each client's risk tolerance, goals and market outlook.

This approach has proven particularly effective in 2025, where a simple, diversified portfolio consisting of an S&P 500 index core holding along with passive bond ETFs, defensive sector ETFs and a gold ETF has outperformed the broader market benchmark.

This is a classic core-and-satellite structure. While the S&P 500 index ETF core holding outperformed in 2023 and 2024, and performance for the satellite holdings was mixed, the satellites are performing well in 2025, and the core is negative.

Amid the strong run for the mega-cap, tech-heavy S&P 500 over the past two years, I’d periodically rebalance to trim off some of those gains and buy into the losing satellites.

In 2025, with some of the satellites, such as gold and defensive sectors, performing strongly and the S&P 500 index core declining, I rebalanced in the opposite direction.

That’s simple, yet tactical and value-added, portfolio management.

Core-and Satellite Example with Passive ETFs

Data as of April 15, 2025. Past performance is no guarantee of future results.

Several traditionally defensive, passive ETFs stand out in 2025 for their risk-adjusted performance. XLP, XLU and XLV have each outperformed the S&P 500 year to date, benefiting from their resilience amid economic uncertainty and trade war tensions.

On the fixed-income side, AGG and SGOV have provided stability and steady income, while GLDM, a low-cost gold ETF, has surged alongside the price of gold as investors seek safe-haven assets. These funds show that with careful allocation, advisors can construct a robust portfolio using low-cost ETFs without the need for active fund management.

These ETFs can be used as tactical satellite holdings around a core position such as IVV, a passively managed S&P 500 ETF. By adjusting the weighting of the satellite holdings based on planned rebalancing strategies, market trends, macroeconomic indicators or client-specific needs, advisors can provide an actively managed solution that’s nimble and cost-efficient.

For example, in times of market stress or elevated volatility, increasing exposure to GLDM or SGOV can reduce risk while preserving capital.

For retired clients needing income, some FAs may prefer to use a low-cost diversified dividend ETF like the Schwab U.S. Dividend Equity ETF (SCHD) or the Vanguard Dividend Appreciation ETF (VIG) for core holdings instead of a less-stable S&P 500 index ETF. Those two funds pair well with SGOV’s high yields and stability as well as XLU’s dividends from utility stocks.

The Bottom Line

Building a core and satellite ETF portfolio allows financial advisors to deliver customized, risk-aware strategies that generate real value for clients—without the higher costs and lower control associated with active ETF management.

More importantly, this approach reinforces the advisor’s role as a hands-on steward of client capital, offering both personalization and performance in one simple, transparent framework.