Core Plus (Financial Definition: What It Is And How It Works)

What is Core Plus in investments?

How do core plus funds or portfolios work?

What are the essential elements you should know!

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What Is Core Plus

Core plus is an investment jargon used to refer to an investment management style where the investment manager acquires investment instruments providing a greater return (with greater risk) while focusing on the core objective of the portfolio.

In other words, the investment manager invests in such a way as to enhance the returns on the core investment objective of a fund or portfolio by purchasing investment instruments providing higher returns but with increased risk. 

Generally speaking, core plus funds relate to fixed-income instruments and fixed-income funds.

You will also find core plus equity funds using the core plus investment strategy to increase their fund return.

For example, you can have a core plus fund primarily focused on high investment-grade corporate bonds.

In equity markets, you’ll qualify mutual funds or other investment funds as income funds (low risk) or balanced funds (low to moderate risk).

Similarly, you can consider the core plus terminology to be used in the same fashion such as core funds (low risk) and core plus funds (low to moderate risk).

Core Plus Definition

According to Investopedia, core plus is defined as:

As you can see from this definition, core plus refers to:

• An investment management style
• To augment a core base of holdings 
• With instruments having a greater risk and providing greater returns 

How Does A Core Plus Investment Strategy Work

Portfolio managers, investment managers, or investment advisors, in general, managing a fund will generally invest based on the specific objectives established by the fund.

A large percentage of the securities held in the fund are purchased to meet the “core” focus of the fund and for the long term (we can say 75% and more of the fund securities).

For the remaining portion of the fund investment securities that are not specifically purchased for the long-term, the investment manager will purchase securities providing a higher return, kept for a shorter time horizon than the core portion of the portfolio, and allowing for a more aggressive investment approach.

Core plus bond funds, core plus real estate funds, core plus equity funds, core plus fixed-income funds, and similar core plus adopt a certain core focus and use some of their capital to take on more risk with the objective to augment their fund returns.

This fund may invest 75% of its capital to satisfy its core investment objective of holding high-yield corporate bonds.

To increase the portfolio return, the investment advisor may choose to allocate the remaining 25% of the portfolio capital to more aggressive investments generating higher returns but resulting in an increased risk to the portfolio.

Typically, the “core” investments are kept long-term whereas the “plus” investments are kept on a shorter timeframe.

Core Plus Fixed Income Funds

Core plus fixed-income funds are investment funds focused on investment-grade bonds or fixed-income securities.

Since the core “plus” is a type of investment strategy where the investment advisor keeps a certain percentage of the portfolio to invest in more aggressive investment instruments such as equity instruments or others.

These types of funds may adopt a strategy to increase their fund returns by investing in high-yield fixed income and foreign debt instruments.

Some funds may focus on high-quality corporate bonds with medium to long-term maturity dates and augment their returns by investing in junk bonds.

Different examples of core plus fixed-income funds are:

• JPMorgan Core Plus Bond Fund
• American Century Core Plus Fund

Core Plus Real Estate Investments

In real estate investment, risk and return are characterized using different terms such as “core”, “core plus”, “value-added”, and “opportunistic”.

Risk and return are generally a function of the physical attribute of a real estate property along with how much debt is used to capitalize the real estate project.

A core real estate investment is a conservative investment strategy offering the investor a stable income and exposing the investment to low risk.

For instance, this would be similar to the purchase of a property offering the owner consistent cash flow over a long period of time with little property maintenance.

A core plus real estate investment strategy is one where additional risk is taken.

In a “core plus” strategy, the investor takes a low to moderate level of risk.

For example, a real estate property where some property improvements are required, some management efficiencies to be exploited, or cash flow improved can represent a core plus real estate investment opportunity.

A value-added real estate investment, the investor is looking for investment growth and taking on moderate to high risk.

The “value-added” real estate investments may not provide the investor with much cash flow on acquisition but can have good future potential to generate income.

Finally, the opportunity investment is a type of investment where the investor takes on the most risk in real estate in an attempt to generate cash flow, income, and returns.

Opportunity investments can include ground-up developments, the purchase of land for development, the repositioning of real estate properties and so on.

“Core Plus” Investment Takeaways 

So, what does core plus mean?

What are core plus investment strategies?

How does it work?

Let’s look at a summary of our findings.

Core Plus Meaning

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