A tech-focused growth portfolio with limited geographic and sector diversification

Report created on Jan 3, 2025

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

This portfolio is heavily weighted towards technology-focused ETFs, comprising over two-thirds of its total assets. The remaining assets are spread across a mix of other sectors, including financial services and consumer cyclicals. Compared to a typical balanced portfolio, which includes a mix of stocks, bonds, and other asset classes, this portfolio is concentrated in equities, particularly in tech. While this can offer strong growth potential, it also increases exposure to sector-specific risks. To mitigate these risks, consider diversifying into other sectors or asset classes to balance growth with stability.

Growth Info

Historically, this portfolio has performed exceptionally well, boasting a Compound Annual Growth Rate (CAGR) of 21.42%. This figure indicates how much the portfolio has grown annually on average, similar to calculating the speed of a car over a long trip. However, the maximum drawdown of -32.89% highlights its vulnerability during market downturns. While past performance is not a guarantee of future results, this history suggests the portfolio can achieve high returns but also experience significant volatility. To smooth out potential future downturns, consider diversifying further to reduce risk.

Projection Info

Forward projections using Monte Carlo simulations, which use historical data to model potential future outcomes, show promising results. The median outcome suggests a potential growth of 1,158.6%, with a 5th percentile of 143.26%, indicating a wide range of possible returns. While these simulations provide insight into potential performance, they are not foolproof and depend on past trends continuing. Given this uncertainty, it may be wise to reassess the portfolio's risk exposure and consider adjustments to better align with your long-term goals and risk tolerance.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely invested in equities, with a negligible cash position. This heavy stock allocation can drive substantial growth but also increases exposure to market volatility. A more balanced allocation, including bonds or other income-generating assets, could provide stability and reduce overall risk. While equities are crucial for growth, incorporating different asset classes can help smooth returns and provide a buffer during market downturns, aligning with a more diversified investment strategy.

Sectors Info

  • Technology
    68%
  • Financials
    6%
  • Consumer Discretionary
    5%
  • Industrials
    5%
  • Telecommunications
    5%
  • Health Care
    4%
  • Consumer Staples
    2%
  • Energy
    2%
  • Basic Materials
    1%
  • Real Estate
    1%
  • Utilities
    1%

The portfolio's sector allocation is dominated by technology, accounting for nearly 68% of the assets. This concentration aligns with growth objectives but may lead to heightened volatility, especially during tech sector downturns. In comparison, a more balanced portfolio typically includes a broader mix of sectors, such as healthcare and consumer staples, to mitigate sector-specific risks. To enhance diversification, consider increasing exposure to underrepresented sectors, which could provide more stability and reduce reliance on technology-driven returns.

Regions Info

  • North America
    99%

Geographically, the portfolio is overwhelmingly concentrated in North America, with over 99% of assets in the region. This limited exposure to international markets can reduce diversification benefits and increase vulnerability to regional economic shifts. In contrast, a globally diversified portfolio typically includes significant allocations to Europe, Asia, and emerging markets. To enhance geographic diversification, consider adding international assets, which can provide exposure to different economic cycles and potentially improve risk-adjusted returns.

Redundant positions Info

  • iShares Russell Top 200 Growth ETF
    Fidelity® MSCI Information Technology Index ETF
    Technology Select Sector SPDR® Fund
    iShares Expanded Tech Sector ETF
    iShares U.S. Technology ETF
    High correlation
  • iShares Morningstar Mid-Cap Growth ETF
    iShares Russell Mid-Cap Growth ETF
    High correlation

The portfolio contains several highly correlated ETFs, particularly within the technology sector. Correlated assets tend to move in the same direction, which can limit diversification benefits and increase risk during market downturns. For instance, the overlap among tech-focused ETFs means they may not provide the desired diversification. To improve diversification, consider replacing some of these correlated assets with those that have lower correlations, potentially enhancing the portfolio's resilience to market volatility.

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's current structure could be optimized using the Efficient Frontier, focusing on achieving the best possible risk-return ratio. This involves adjusting the allocation among existing assets to maximize returns for a given level of risk. However, before optimizing, consider removing highly correlated assets that do not contribute to diversification. By doing so, you can better position the portfolio to achieve optimal efficiency, balancing risk and return to meet your investment objectives more effectively.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.60%
  • Fidelity® MSCI Information Technology Index ETF 0.40%
  • iShares Expanded Tech Sector ETF 0.20%
  • iShares Morningstar Mid-Cap Growth ETF 0.60%
  • iShares Russell Mid-Cap Growth ETF 0.40%
  • iShares Russell Top 200 Growth ETF 0.30%
  • iShares U.S. Technology ETF 0.20%
  • Vanguard S&P 500 ETF 1.20%
  • Technology Select Sector SPDR® Fund 0.50%
  • Weighted yield (per year) 0.65%

The portfolio's dividend yield is relatively low at 0.65%, reflecting its growth-oriented focus. Dividends can provide a steady income stream, which is particularly valuable during market downturns when capital gains may be harder to achieve. While growth investments often have lower yields, incorporating higher-yielding assets could enhance income stability. Consider balancing growth with income-generating investments to improve cash flow and reduce reliance on capital appreciation for returns.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Fidelity® MSCI Information Technology Index ETF 0.08%
  • iShares Expanded Tech Sector ETF 0.41%
  • iShares Morningstar Mid-Cap Growth ETF 0.06%
  • iShares Russell Mid-Cap Growth ETF 0.23%
  • iShares Russell Top 200 Growth ETF 0.20%
  • iShares U.S. Technology ETF 0.40%
  • Vanguard S&P 500 ETF 0.03%
  • Technology Select Sector SPDR® Fund 0.09%
  • Weighted costs total (per year) 0.13%

The total expense ratio (TER) of 0.13% is impressively low, supporting better long-term performance by minimizing costs. Low fees are crucial as they can significantly impact net returns over time. Compared to industry averages, this cost structure is favorable, allowing more of your investment to compound. Continue to monitor and manage costs, ensuring they remain competitive. If possible, seek even lower-cost alternatives to further enhance net returns without compromising on investment quality.

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