A balanced portfolio with tech focus and strong historical performance but high asset correlation

Report created on Jan 28, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

5/5
Highly Diversified
Less diversification More diversification

Positions

This portfolio is composed of three ETFs, with the Vanguard FTSE All-World UCITS ETF making up 40.31% of the total. The iShares S&P 500 Information Technology ETF accounts for 37.77%, and the Vanguard LifeStrategy 80% Equity ETF comprises 21.92%. The portfolio leans heavily towards equities, with a small allocation to bonds. Compared to a typical balanced portfolio, this one is more equity-heavy. While the composition suggests a focus on growth, the high allocation to a single sector may limit diversification. Consider reviewing sector concentration to ensure it aligns with your risk tolerance and investment goals.

Growth Info

Historically, this portfolio has performed well with a CAGR of 16.23%, indicating strong growth over time. However, it experienced a maximum drawdown of -19.43%, which reflects the potential volatility during market downturns. Compared to a balanced benchmark, this performance is robust but carries higher risk. Understanding past performance can provide insight, but remember that it doesn't guarantee future results. To mitigate potential drawdowns, consider diversifying further or adding more defensive assets.

Projection Info

The Monte Carlo simulation used here projects a range of potential outcomes by analyzing historical data. With 1,000 simulations, the portfolio shows a median outcome of 675.4% growth. This indicates a strong potential for future returns, though it's important to note that all simulations resulted in positive returns. However, remember that simulations are based on historical data, which can't predict future market conditions. Regularly reviewing and adjusting your portfolio can help manage risks and align with changing financial goals.

Asset classes Info

  • Stocks
    96%
  • Bonds
    4%

The portfolio's asset allocation is heavily weighted towards stocks at 96%, with only 4% in bonds. This skew towards equities suggests a focus on growth, but it also introduces higher volatility. Compared to a typical balanced portfolio with more bonds, this allocation is aggressive. Diversifying across more asset classes, such as increasing bond exposure, could help reduce risk and provide more stable returns. Consider balancing the asset classes to better align with your risk tolerance and investment goals.

Sectors Info

  • Technology
    54%
  • Financials
    10%
  • Consumer Discretionary
    7%
  • Health Care
    6%
  • Industrials
    6%
  • Telecommunications
    5%
  • Consumer Staples
    4%
  • Energy
    2%
  • Basic Materials
    2%
  • Utilities
    2%
  • Real Estate
    1%

The portfolio is notably concentrated in the technology sector, which comprises 54% of the total allocation. Other sectors like financial services and consumer cyclicals have significantly smaller weights. While this tech focus has likely driven past performance, it also increases vulnerability to sector-specific risks. For instance, tech-heavy portfolios may face higher volatility during interest rate hikes. To mitigate this, consider diversifying into other sectors to balance potential risks and opportunities.

Regions Info

  • North America
    79%
  • Europe Developed
    9%
  • Japan
    4%
  • Asia Emerging
    4%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%
  • Latin America
    1%

Geographically, the portfolio is heavily tilted towards North America, which makes up 79% of the allocation. Europe, Japan, and other regions have much smaller exposures. This concentration in North America aligns with the tech focus but may limit global diversification benefits. In comparison, a more geographically balanced portfolio might include greater exposure to emerging markets. To enhance diversification and reduce regional risk, consider rebalancing to include more international assets.

Market capitalization Info

  • Mega-cap
    52%
  • Large-cap
    30%
  • Mid-cap
    12%

The portfolio is primarily invested in mega-cap and big-cap stocks, with 52% and 30% allocations, respectively. Medium-cap stocks make up 12%, while small and micro caps are absent. This focus on larger companies typically offers stability and lower volatility, but it may limit growth potential compared to smaller-cap stocks. Including a mix of small and medium-cap stocks could enhance diversification and growth opportunities. Consider adjusting the market cap allocation to better align with your risk and return objectives.

Redundant positions Info

  • Vanguard FTSE All-World UCITS ETF USD Accumulation
    Vanguard LifeStrategy 80% Equity UCITS ETF (EUR) Accumulating
    High correlation

The portfolio exhibits high correlation between the Vanguard FTSE All-World and Vanguard LifeStrategy ETFs. This means these assets tend to move in the same direction, reducing diversification benefits. Highly correlated assets can amplify risk during market downturns, as they may decline simultaneously. To improve diversification, consider replacing one of these ETFs with an asset that has a lower correlation, thus spreading risk more effectively and potentially enhancing the risk-return profile.

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.

This portfolio could benefit from optimization using the Efficient Frontier, which identifies the best possible risk-return ratio for a given set of assets. Currently, the high correlation between certain assets may limit diversification benefits. By adjusting allocations to less correlated assets, you can potentially achieve a more efficient portfolio. Remember, optimization focuses on the current assets and allocation changes between them, so it's important to regularly review and adjust to maintain optimal performance.

Ongoing product costs Info

  • iShares S&P 500 USD Information Technology Sector UCITS 0.15%
  • Vanguard LifeStrategy 80% Equity UCITS ETF (EUR) Accumulating 0.25%
  • Vanguard FTSE All-World UCITS ETF USD Accumulation 0.22%
  • Weighted costs total (per year) 0.20%

The portfolio's total expense ratio (TER) stands at 0.20%, which is relatively low and supports better long-term performance by minimizing costs. Low fees are advantageous as they help retain more of the portfolio's returns. Compared to industry averages, this cost structure is competitive and well-aligned with best practices. Maintaining a focus on low-cost investments can enhance net returns over time. Continue monitoring for any changes in fees and consider low-cost options when rebalancing or adding new assets.

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