Balanced Portfolio with Global Exposure and Strong Historical Performance but Limited Asset Class Diversification
Report created on Jun 28, 2024Risk profile
4/7
Diversification profile
3/5
Positions
-
SW iShares Core MSCI World UCITS ETF USD (Acc)
SWDA - IE00B4L5Y983 100.00%
The portfolio is entirely composed of the iShares Core MSCI World UCITS ETF, offering exposure to global equities. This ETF covers a wide range of companies across different sectors and geographies, providing a moderately diversified approach. While the ETF offers a balanced risk profile, it lacks diversification in terms of asset classes, focusing heavily on stocks. This composition suits investors looking for broad market exposure but may require additional diversification for those seeking to mitigate risk through other asset classes like bonds or real estate.
Growth
Historically, the portfolio has performed well, with a compound annual growth rate (CAGR) of 12.95%. This indicates strong returns over time, albeit with a maximum drawdown of -25.61%, highlighting potential volatility. The portfolio's performance is driven by its equity exposure, which benefits from global market growth. However, the concentrated nature of the investment means that during market downturns, the portfolio may experience significant fluctuations. Investors should be prepared for this level of volatility and consider whether it aligns with their risk tolerance and investment goals.
Projection
The Monte Carlo simulation, which uses random sampling to predict future outcomes, suggests a positive outlook for the portfolio. With 1,000 simulations, the portfolio showed a 999 count of positive returns, with an annualized return of 13.85%. The 5th percentile indicates a modest gain, while the 50th and 67th percentiles suggest substantial growth. While these projections are promising, they are based on historical data and assumptions, and actual future performance may vary. Investors should use this as one of several tools to gauge potential outcomes and ensure their strategy aligns with their financial goals.
Asset classes
- Stocks 100%
The portfolio's asset class allocation is heavily skewed towards stocks, with over 99% in equities. This reflects a high-risk, high-reward strategy typical of equity-focused investments. While this can lead to significant returns during market upswings, it also exposes the portfolio to greater volatility and potential losses during downturns. Investors seeking to reduce risk might consider incorporating other asset classes, such as bonds or real estate, to create a more balanced portfolio. This approach could help mitigate the impact of market fluctuations and provide a more stable return over time.
Sectors
- Technology 27%
- Financials 16%
- Health Care 11%
- Consumer Discretionary 10%
- Industrials 10%
- Telecommunications 8%
- Consumer Staples 6%
- Energy 4%
- Basic Materials 3%
- Utilities 3%
- Real Estate 2%
Sector allocation within the portfolio is diverse, with significant exposure to technology, financial services, and healthcare. These sectors are known for their growth potential, which can drive strong portfolio performance. However, reliance on specific sectors can also increase vulnerability to sector-specific downturns. A well-diversified sector allocation can help mitigate this risk, ensuring that the portfolio is not overly dependent on any single industry. Investors should regularly review sector performance and consider rebalancing their portfolio to maintain a balanced and diversified sector allocation.
Regions
- North America 77%
- Europe Developed 15%
- Japan 5%
- Australasia 2%
- Asia Developed 1%
Geographically, the portfolio is heavily weighted towards North America, with over 76% of its assets allocated there. While this provides exposure to one of the world's largest and most dynamic markets, it also means the portfolio is highly dependent on the performance of the U.S. economy. Other regions, such as Europe and Japan, are represented to a lesser extent. To enhance geographic diversification, investors might consider adding exposure to emerging markets or underrepresented regions, which could offer growth opportunities and reduce reliance on any single market.
Ongoing product costs
- iShares Core MSCI World UCITS ETF USD (Acc) 0.20%
- Weighted costs total (per year) 0.20%
The portfolio's costs are relatively low, with a total expense ratio (TER) of 0.2%. This is advantageous for investors, as lower costs can significantly enhance net returns over time. Keeping investment costs low is a fundamental principle of successful investing, as high fees can erode returns, particularly in a long-term investment strategy. Investors should continue to monitor and compare costs across different investment options to ensure they are maintaining an efficient and cost-effective portfolio.
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