Balanced Portfolio with High Concentration in US Stocks and Technology Sectors Offers Strong Historical Performance and Diversification

Report created on Dec 3, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

The portfolio is heavily concentrated in two main ETFs, the iShares Core S&P 500 UCITS ETF and the Vanguard FTSE All-World UCITS ETF, each making up 49% of the total. This composition suggests a diversified exposure to global equities with a significant emphasis on the US market. The remaining 2% is split between the iShares S&P 500 Information Technology Sector ETF and the iShares NASDAQ 100 ETF, indicating a slight tilt towards technology. While this provides broad market exposure, the concentration in a few ETFs could limit diversification benefits. Consider reviewing the allocation to ensure alignment with long-term goals.

Growth Info

Historically, the portfolio has shown impressive growth with a compound annual growth rate (CAGR) of 15.22%. However, it has also experienced significant volatility, with a maximum drawdown of -33.56%. This performance highlights the potential for high returns, albeit with notable risk exposure. The fact that only 24 days account for 90% of returns underscores the importance of staying invested through market fluctuations. To enhance stability, consider diversifying further or incorporating assets with lower volatility, which could provide a buffer during downturns.

Projection Info

Using a Monte Carlo simulation, the future performance of the portfolio was projected with 1,000 simulations. The results show a wide range of potential outcomes, with the 5th percentile at 250.5% and the 67th percentile at 1,666.79%. This indicates a strong probability of positive returns, with an annualized return of 21.57%. However, the wide variance also suggests considerable uncertainty. A Monte Carlo simulation helps in understanding potential risks and returns, but it's crucial to regularly review and adjust the portfolio to maintain alignment with risk tolerance and financial goals.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with 99.91% allocated to this asset class. This high concentration in equities suggests a growth-oriented strategy, which can lead to significant returns over the long term but also exposes the portfolio to market volatility. The minimal allocation to cash and other asset classes indicates limited liquidity and risk mitigation. To manage risk, consider diversifying into other asset classes such as bonds or real estate, which could provide stability and income in various market conditions.

Sectors Info

  • Technology
    30%
  • Financials
    14%
  • Consumer Discretionary
    11%
  • Health Care
    11%
  • Industrials
    9%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Energy
    4%
  • Basic Materials
    3%
  • Utilities
    3%
  • Real Estate
    2%

Sector allocation is heavily skewed towards technology, comprising 30.13% of the portfolio. Other significant sectors include financial services, consumer cyclicals, and healthcare. While this sector distribution offers exposure to growth industries, it also increases vulnerability to sector-specific downturns. The focus on technology could lead to higher volatility, given the sector's cyclical nature. To mitigate this risk, consider balancing the sector allocation by increasing exposure to defensive sectors like utilities or consumer staples, which tend to perform well in different economic cycles.

Regions Info

  • North America
    82%
  • Europe Developed
    8%
  • Asia Emerging
    3%
  • Japan
    3%
  • Asia Developed
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

Geographically, the portfolio is predominantly invested in North America, accounting for 82.33% of the allocation. This heavy concentration in a single region limits exposure to other potentially lucrative markets. Europe Developed, Asia Emerging, and Japan make up smaller portions of the portfolio, offering some diversification. However, the limited exposure to other regions could result in missed opportunities for growth. To enhance geographic diversification, consider increasing allocations to underrepresented regions, which could provide additional growth potential and reduce reliance on the US market.

Redundant positions Info

  • iShares NASDAQ 100 UCITS ETF USD (Acc)
    iShares S&P 500 USD Information Technology Sector UCITS
    High correlation
  • iShares Core S&P 500 UCITS ETF USD (Acc)
    Vanguard FTSE All-World UCITS ETF USD Accumulation
    High correlation

The portfolio contains highly correlated assets, particularly between the iShares NASDAQ 100 and the iShares S&P 500 Information Technology Sector ETFs, as well as the iShares Core S&P 500 and Vanguard FTSE All-World ETFs. This high correlation suggests limited diversification benefits, as these assets tend to move in tandem. Overlapping holdings can increase risk without adding significant value. To improve diversification, consider reducing exposure to highly correlated assets and incorporating investments with lower correlations, which can help balance the portfolio and reduce overall risk.

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.

Portfolio optimization suggests focusing on reducing overlapping assets that don't add diversification benefits. By addressing this, the portfolio can become more efficient along the efficient frontier, offering a better risk-return balance. Moving towards a riskier portfolio involves increasing equity exposure or investing in higher volatility sectors. Conversely, a more conservative approach could include adding bonds or other low-risk assets. Before optimizing, it's crucial to evaluate current holdings and ensure they align with financial goals and risk appetite. This step can lead to more strategic asset allocation.

Ongoing product costs Info

  • iShares S&P 500 USD Information Technology Sector UCITS 0.15%
  • iShares Core S&P 500 UCITS ETF USD (Acc) 0.12%
  • iShares NASDAQ 100 UCITS ETF USD (Acc) 0.36%
  • Vanguard FTSE All-World UCITS ETF USD Accumulation 0.22%
  • Weighted costs total (per year) 0.17%

The overall portfolio cost is relatively low, with a total expense ratio (TER) of 0.17%. This is an advantage for long-term investors, as lower costs can lead to higher net returns over time. The individual TERs of the ETFs range from 0.12% to 0.36%, indicating some variability. While these costs are competitive, it's important to regularly review them to ensure they remain aligned with investment objectives. Keeping costs low is a crucial component of a successful investment strategy, as it allows more of the portfolio's returns to be retained.

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