A tech-heavy portfolio with high concentration in US markets and low diversification

Report created on Dec 15, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

This portfolio is heavily weighted towards two ETFs, with the Invesco EQQQ NASDAQ-100 UCITS ETF Acc making up 70% and the Vanguard S&P 500 UCITS Acc comprising 30%. This composition indicates a strong focus on large-cap US stocks, particularly in the technology sector. Such concentration can lead to significant exposure to market-specific risks. For a balanced portfolio, it’s generally advisable to diversify across various asset classes and sectors to mitigate risk. Consider introducing bonds or other asset types to better align with a balanced risk profile.

Growth Info

Historically, this portfolio has delivered a compound annual growth rate (CAGR) of 18.8%, which is impressive. However, it also experienced a maximum drawdown of -22.13%, indicating potential vulnerability during market downturns. Past performance is not a guarantee of future results, but it provides insight into how the portfolio might behave under different market conditions. To potentially reduce the impact of future downturns, consider diversifying into assets that historically perform well in different market cycles.

Projection Info

The Monte Carlo simulation projects a range of possible outcomes for the portfolio, using historical data to simulate future performance. With 1,000 simulations, the median (50th percentile) end portfolio value is projected at 1,006.87%, with all simulations showing positive returns. While these projections are promising, they rely on historical trends and assumptions that may not hold in the future. To improve confidence in future outcomes, consider stress testing the portfolio against various economic scenarios.

Asset classes Info

  • Stocks
    100%

The portfolio is currently 100% invested in stocks, specifically through ETFs tracking major indices. This lack of diversification across asset classes can increase volatility and risk. Diversifying into bonds, real estate, or commodities can help stabilize returns and provide a hedge against equity market downturns. A balanced portfolio typically includes a mix of different asset classes to optimize the risk-return balance.

Sectors Info

  • Technology
    46%
  • Telecommunications
    14%
  • Consumer Discretionary
    13%
  • Health Care
    7%
  • Consumer Staples
    6%
  • Industrials
    5%
  • Financials
    4%
  • Utilities
    2%
  • Basic Materials
    2%
  • Energy
    1%
  • Real Estate
    1%

With nearly half of the portfolio concentrated in the technology sector, there is a significant sector bias. While tech stocks have historically provided robust returns, they also come with increased volatility. Balancing exposure across more sectors could reduce this risk. Consider increasing allocations to underrepresented sectors like healthcare or consumer staples, which may offer more stability in turbulent markets.

Regions Info

  • North America
    98%
  • Europe Developed
    1%

The portfolio is overwhelmingly concentrated in North American markets, with over 98% exposure. Such geographic concentration can limit opportunities and increase risk tied to regional economic conditions. Expanding into other regions like Europe, Asia, or emerging markets can enhance diversification and provide exposure to different economic cycles. This can help mitigate the impact of localized downturns and capture growth opportunities globally.

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.

Using the Efficient Frontier, this portfolio could potentially be optimized by adjusting the weightings between the current ETFs. The aim is to achieve the best possible risk-return ratio with the existing assets. This might involve slightly reducing the tech-heavy NASDAQ-100 exposure and increasing the S&P 500 allocation to better balance risk. Remember, optimization is about maximizing returns for a given level of risk, not necessarily achieving broader diversification.

Ongoing product costs Info

  • Invesco EQQQ NASDAQ-100 UCITS ETF Acc 0.35%
  • Vanguard S&P 500 UCITS Acc 0.07%
  • Weighted costs total (per year) 0.27%

The portfolio’s total expense ratio (TER) is 0.27%, which is relatively low and advantageous for long-term compounding. However, costs can still eat into returns over time. Regularly reviewing and comparing the expense ratios of alternative funds can help ensure you’re minimizing costs. Opting for lower-cost funds with similar exposure can enhance net returns without altering the risk profile significantly.

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