High Risk Low Diversity Growth Portfolio with Strong Momentum and North American Focus
Report created on Nov 29, 2024Risk profile
5/7
Diversification profile
2/5
Positions
-
SP Invesco S&P 500® Momentum ETF
SPMO - US46138E3392 100.00%
The portfolio is solely composed of the Invesco S&P 500® Momentum ETF, representing 100% of the allocation. This singular investment results in low diversification, focusing heavily on momentum-driven stocks within the S&P 500 index. While this streamlined approach may simplify management, it also concentrates risk and limits exposure to different asset classes or investment strategies. Considering the growth profile and low diversity classification, it's crucial to evaluate if this aligns with your long-term financial goals and risk tolerance.
Growth
A hypothetical initial investment in this portfolio would have experienced a compound annual growth rate (CAGR) of 21.41%. However, this impressive growth came with a maximum drawdown of -30.93%, reflecting significant volatility. Only 35 days contributed to 90% of the returns, indicating that the portfolio's performance is driven by short bursts of gains. Understanding this volatility is essential for managing expectations and ensuring that the risk-reward profile aligns with your investment goals.
Projection
A Monte Carlo simulation, which uses random sampling to predict future outcomes, was conducted with 1,000 simulations. Assuming a hypothetical initial investment, the 5th percentile result suggests a significant potential gain of 350.23%, while the median (50th percentile) projection indicates a 1,561.21% increase. This suggests a strong likelihood of positive returns, with all simulations showing gains. However, the annualized return of 23.98% highlights the potential variability and risk inherent in this high-growth strategy.
Asset classes
- Stocks 100%
The portfolio is heavily weighted towards stocks, with 99.96% allocated to equities and a minimal 0.04% in cash. This allocation reflects a strong commitment to capturing equity market returns, but it also exposes the portfolio to significant market risk. The absence of other asset classes, such as bonds or commodities, limits the potential for risk mitigation through diversification. To enhance stability, consider incorporating a broader mix of asset classes to balance growth and risk.
Sectors
- Financials 23%
- Technology 23%
- Consumer Discretionary 13%
- Industrials 10%
- Health Care 10%
- Telecommunications 9%
- Consumer Staples 7%
- Energy 2%
- Utilities 2%
- Real Estate 1%
- Basic Materials 1%
The sector allocation is concentrated in Financial Services and Technology, which together account for nearly half of the portfolio. This focus on high-growth sectors aligns with the momentum strategy but increases vulnerability to sector-specific downturns. Diversifying into other sectors could reduce risk and enhance resilience against market fluctuations. While momentum strategies can be rewarding, they may also lead to overexposure in certain sectors, so maintaining a balanced approach is advisable.
Regions
- North America 99%
- Europe Developed 1%
Geographically, the portfolio is overwhelmingly concentrated in North America, with 98.54% of assets allocated to this region. This focus aligns with the S&P 500's composition but limits exposure to international markets. While North American markets have historically performed well, geographic diversification could reduce regional risk and provide opportunities in emerging or underrepresented markets. Expanding geographic exposure may help mitigate potential downturns in any single region.
Dividends
- Invesco S&P 500® Momentum ETF 0.40%
- Weighted yield (per year) 0.40%
With a dividend yield of 0.4%, the portfolio provides a modest income stream. While this yield may not significantly impact overall returns, it does offer some level of income generation. For investors seeking higher income, exploring options with higher dividend yields might be beneficial. However, it's important to balance income needs with growth objectives, ensuring that the portfolio composition aligns with the desired investment strategy and risk tolerance.
Ongoing product costs
- Invesco S&P 500® Momentum ETF 0.13%
- Weighted costs total (per year) 0.13%
The portfolio's cost structure is quite efficient, with a Total Expense Ratio (TER) of 0.13% for the Invesco S&P 500® Momentum ETF. This low-cost approach helps maximize net returns, as lower fees mean more of the portfolio's gains are retained. Keeping investment costs low is a crucial factor in long-term portfolio performance. Regularly reviewing and optimizing the cost structure can further enhance returns, especially when considering potential additions or changes to the portfolio.
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