A balanced portfolio with strong US focus and high exposure to technology sector
Report created on Jan 12, 2025Risk profile
4/7
Diversification profile
3/5
Positions
-
SX iShares Core S&P 500 UCITS ETF USD (Acc)
SXR8 - IE00B5BMR087 60.00% -
EU iShares Core MSCI World UCITS ETF USD (Acc)
EUNL - IE00B4L5Y983 40.00%
The portfolio is composed of two ETFs: iShares Core S&P 500 UCITS ETF and iShares Core MSCI World UCITS ETF, with a 60% and 40% allocation, respectively. This structure leans heavily towards equities, which is typical for a balanced portfolio seeking growth. While the S&P 500 provides exposure to large-cap US stocks, the MSCI World ETF offers broader international diversification. However, the portfolio lacks significant exposure to bonds or other asset classes, which could provide stability during market downturns. Consider diversifying further to include bonds or alternative assets to reduce volatility and enhance long-term resilience.
Growth
Historically, the portfolio has performed well, achieving a compound annual growth rate (CAGR) of 13.72%. This robust performance is partly due to the strong returns from US equities over the past decade. However, it's important to note the maximum drawdown of -33.72%, indicating potential vulnerability during market corrections. While past performance is not indicative of future results, these figures suggest the portfolio can deliver impressive returns but may also experience significant swings. To mitigate this risk, consider strategies such as rebalancing or incorporating assets with lower volatility.
Projection
Forward projections using Monte Carlo simulations indicate a wide range of potential outcomes. The median scenario suggests a 477.28% portfolio increase, while the 5th percentile projects a modest 102.33% gain. Monte Carlo simulations use historical data to model future scenarios, but they cannot predict exact outcomes. The high number of simulations with positive returns (995 out of 1,000) suggests a favorable outlook, but it's crucial to remember that these are probabilistic forecasts. Regularly reviewing and adjusting the portfolio in response to market changes can help align with personal goals.
Asset classes
- Stocks 100%
The portfolio is overwhelmingly invested in stocks, accounting for nearly 100% of the allocation. This heavy equity focus provides significant growth potential but also increases exposure to market volatility. The lack of diversification across asset classes means the portfolio could benefit from adding fixed income or alternative investments, which might offer more stability and income. A more balanced allocation could help cushion against equity market downturns and improve risk-adjusted returns.
Sectors
- Technology 31%
- Financials 14%
- Consumer Discretionary 11%
- Health Care 10%
- Telecommunications 9%
- Industrials 8%
- Consumer Staples 6%
- Energy 3%
- Utilities 3%
- Basic Materials 2%
- Real Estate 2%
The portfolio has a notable concentration in the technology sector, making up over 30% of the allocation. This sector has driven much of the recent market growth, but it can also be volatile, especially during periods of regulatory scrutiny or economic shifts. While the sector allocation aligns with common benchmarks, the high concentration could expose the portfolio to sector-specific risks. Diversifying into other sectors with lower representation could help mitigate this risk and provide more balanced exposure to different economic cycles.
Regions
- North America 90%
- Europe Developed 6%
- Japan 2%
- Australasia 1%
Geographically, the portfolio is heavily weighted towards North America, with over 90% exposure. This concentration reflects the dominance of US equities in the ETFs but limits diversification benefits from other regions. While the US market has been a strong performer, geopolitical risks and policy changes could impact returns. Increasing exposure to underrepresented regions such as Europe or emerging markets might enhance diversification and capture growth opportunities outside the US, aligning the portfolio more closely with global benchmarks.
Redundant positions
-
High correlationiShares Core MSCI World UCITS ETF USD (Acc)iShares Core S&P 500 UCITS ETF USD (Acc)
The assets within the portfolio are highly correlated, particularly between the two ETFs. This correlation means they tend to move in the same direction, reducing the diversification benefits. In times of market stress, highly correlated assets may not provide the desired risk mitigation. To improve diversification, consider incorporating assets with lower correlations, such as bonds or alternative investments, which may behave differently across various market conditions.
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 seeks the best risk-return ratio. However, the current high correlation between assets suggests limited diversification benefits. By reducing overlap and incorporating less correlated assets, the portfolio could achieve a more efficient allocation. This optimization focuses on maximizing returns for a given level of risk, but it requires careful consideration of asset choices and market conditions.
Ongoing product costs
- iShares Core MSCI World UCITS ETF USD (Acc) 0.20%
- iShares Core S&P 500 UCITS ETF USD (Acc) 0.12%
- Weighted costs total (per year) 0.15%
The portfolio's total expense ratio (TER) is impressively low at 0.15%, which supports better long-term performance by minimizing costs. Low fees are crucial as they compound over time, eating into returns. Maintaining a focus on cost-effective investments is a sound strategy, but it's also important to ensure that cost savings do not come at the expense of diversification or risk management. Regularly reviewing the cost structure can help optimize returns.
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