A growth-focused portfolio with strong European exposure and moderate risk profile

Report created on Jan 20, 2025

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

This portfolio is heavily weighted towards equity ETFs, with 60% in the Vanguard FTSE Developed Markets Index Fund ETF Shares and 20% in the iShares Europe ETF. The remaining 20% is split between the Avantis® U.S. Small Cap Value ETF and the Vanguard FTSE Emerging Markets Index Fund ETF Shares. This composition leans towards developed markets with a notable European focus, potentially limiting exposure to dynamic growth areas in emerging markets. Diversification is broad, though primarily within equities, suggesting a focus on growth over stability. To enhance diversification, consider incorporating other asset classes, such as bonds or real estate, which can provide a cushion during market volatility.

Growth Info

Historically, the portfolio has delivered a Compound Annual Growth Rate (CAGR) of 9.24%, which is respectable for a growth-oriented strategy. However, it has experienced a maximum drawdown of -36.60%, highlighting vulnerability during market downturns. This performance aligns with typical growth portfolios, which aim for higher returns at the cost of increased volatility. Comparing this to a benchmark can provide insight into relative performance. Consider strategies to mitigate drawdowns, such as diversifying into less correlated assets or incorporating defensive sectors.

Projection Info

Using Monte Carlo simulations, which predict future scenarios based on historical data, this portfolio shows an annualized return of 11.38% across 1,000 simulations. While the median outcome suggests robust growth, the 5th percentile projects a potential decline of -31.7%. This highlights the uncertainty and risk inherent in market predictions. Remember, simulations rely on historical data, which may not predict future events accurately. To prepare for volatility, consider regular portfolio rebalancing and staying informed about macroeconomic trends that could impact these projections.

Asset classes Info

  • Stocks
    98%
  • Cash
    1%

The portfolio is predominantly composed of stocks, making up 98% of the allocation, with a minimal 1% in cash. This stock-heavy allocation aims for capital appreciation but lacks the stability that bonds or other fixed-income assets can provide. Compared to a balanced benchmark, this allocation is aggressive and suited for those with a higher risk tolerance. To improve diversification and risk management, consider adding fixed-income assets, which can help stabilize returns during equity market downturns.

Sectors Info

  • Financials
    22%
  • Industrials
    17%
  • Technology
    11%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Consumer Staples
    7%
  • Basic Materials
    7%
  • Energy
    6%
  • Telecommunications
    4%
  • Utilities
    3%
  • Real Estate
    2%

Sector allocation shows a diverse spread, with Financial Services (22%) and Industrials (17%) leading. Technology and Consumer Cyclicals each comprise 11%, while Healthcare accounts for 10%. This sector mix provides exposure to both cyclical and defensive industries. However, the portfolio might experience volatility due to its significant exposure to Financial Services and Industrials, which can be sensitive to economic cycles. To enhance resilience, consider increasing allocation to sectors like Healthcare or Consumer Defensive, which tend to perform better during economic slowdowns.

Regions Info

  • Europe Developed
    51%
  • North America
    17%
  • Japan
    13%
  • Asia Emerging
    6%
  • Asia Developed
    6%
  • Australasia
    4%
  • Africa/Middle East
    2%
  • Latin America
    1%

Geographically, the portfolio is heavily weighted towards Europe Developed (51%) and North America (17%), with lesser exposure to Japan and emerging markets. This allocation suggests a focus on stable, mature economies, potentially at the cost of missing out on higher growth opportunities in emerging regions. Compared to a global benchmark, this portfolio is overexposed to Europe. Consider rebalancing to increase exposure to emerging markets, which could provide diversification benefits and capture growth potential in rapidly developing economies.

Market capitalization Info

  • Mega-cap
    40%
  • Large-cap
    30%
  • Mid-cap
    15%
  • Small-cap
    8%
  • Micro-cap
    5%

The portfolio's market capitalization breakdown shows a preference for larger companies, with 40% in mega-cap and 30% in big-cap stocks. Medium, small, and micro-cap stocks make up the remaining 28%, offering some exposure to potentially higher growth but riskier investments. This focus on larger companies can provide stability and reliable dividends but might limit growth potential. To enhance growth prospects, consider increasing allocation to small and medium-cap stocks, which can offer higher returns albeit with increased volatility.

Redundant positions Info

  • Vanguard FTSE Developed Markets Index Fund ETF Shares
    iShares Europe ETF
    High correlation

The portfolio includes highly correlated assets, particularly between the Vanguard FTSE Developed Markets Index Fund ETF Shares and iShares Europe ETF. High correlation means these assets tend to move in the same direction, reducing diversification benefits. During market downturns, this can lead to amplified losses. To improve diversification, consider replacing one of these ETFs with an asset that has a lower correlation to the rest of the portfolio, enhancing risk management and potentially smoothing returns.

Risk vs. return

This chart shows the Efficient Frontier, calculated using your current assets with different allocation combinations. It highlights the best balance between risk and return based on historical data. "Efficient" portfolios maximize returns for a given risk or minimize risk for a given return. Portfolios below the curve are less efficient. This is informational and not a recommendation to buy or sell any assets.

Click on the colored dots to explore allocations.

The portfolio could benefit from optimization using the Efficient Frontier, which aims to achieve the best possible risk-return ratio with the current assets. This involves adjusting the allocation between the existing ETFs to maximize returns for a given level of risk. While the portfolio is already diversified, focusing on reducing overlap and enhancing diversification can further improve risk-adjusted returns. Regular rebalancing and monitoring of asset correlations can help maintain an optimal allocation over time.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.60%
  • iShares Europe ETF 2.30%
  • Vanguard FTSE Developed Markets Index Fund ETF Shares 1.80%
  • Vanguard FTSE Emerging Markets Index Fund ETF Shares 3.20%
  • Weighted yield (per year) 2.02%

The portfolio's overall dividend yield stands at 2.02%, with the Vanguard FTSE Emerging Markets Index Fund ETF Shares providing the highest yield at 3.20%. Dividends can provide a steady income stream and help cushion against market volatility. For growth-oriented investors, dividends may be reinvested to compound returns over time. If income generation is a priority, consider increasing exposure to high-dividend sectors or ETFs. Otherwise, reinvesting dividends can enhance long-term growth potential.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • iShares Europe ETF 0.67%
  • Vanguard FTSE Developed Markets Index Fund ETF Shares 0.05%
  • Vanguard FTSE Emerging Markets Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.20%

The total expense ratio (TER) for the portfolio is 0.20%, which is relatively low and supports better long-term performance by minimizing cost drag. The Vanguard FTSE Developed Markets Index Fund ETF Shares has the lowest TER at 0.05%, while the iShares Europe ETF is higher at 0.67%. Keeping costs low is crucial, as it allows more of your investment to compound over time. Regularly review and compare fund expenses to ensure they remain competitive, potentially switching to lower-cost alternatives if available.

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