Balanced Portfolio with High Technology Exposure and Moderate Diversification Needs Attention on Asset Correlation

Report created on Jul 22, 2024

Risk profile

  • Secure
    Speculative

The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.

Diversification profile

  • Focused
    Diversified

The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.

Positions

The portfolio consists of two ETFs: db x-trackers MSCI World Index UCITS DR 1C and Xtrackers Artificial Intelligence & Big Data UCITS ETF 1C. With 78.41% in the MSCI World ETF, it provides broad global exposure, while the remaining 21.59% in the AI & Big Data ETF offers a focus on emerging tech sectors. This combination makes the portfolio moderately diversified. The high concentration in technology suggests a tilt towards growth, but it also increases exposure to sector-specific risks. Balancing this exposure with other sectors could enhance diversification and reduce potential volatility.

Growth Info

With a hypothetical initial investment, the portfolio has shown a strong historical performance with a CAGR of 16.19%. The portfolio, however, experienced a significant max drawdown of -33.23%, indicating vulnerability during market downturns. This performance suggests a high-growth potential but also highlights the importance of managing risks. To mitigate potential losses, consider diversifying beyond technology and adding more stable assets. This could help in smoothing out returns and protecting against future downturns, ensuring a more stable growth trajectory over time.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio shows a promising forward projection. Assuming a hypothetical initial investment, the 50th percentile outcome is a 931.41% increase, with an annualized return of 19.61%. While 999 simulations resulted in positive returns, this approach highlights the range of possible outcomes, emphasizing both potential gains and risks. To improve future outcomes, consider reducing the concentration in highly correlated assets and exploring options to diversify further. This could potentially enhance the portfolio's resilience against market fluctuations.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, accounting for 99.71% of the allocation, with minimal exposure to cash and other asset classes. This concentration in equities suggests a focus on capital appreciation but also exposes the portfolio to higher volatility. To achieve a more balanced risk-return profile, consider incorporating fixed-income assets or other asset classes. This could provide more stability and reduce the impact of market downturns. Diversifying asset classes can help in achieving long-term financial goals while managing risk effectively.

Sectors Info

  • Technology
    37%
  • Financials
    13%
  • Telecommunications
    9%
  • Health Care
    9%
  • Consumer Discretionary
    9%
  • Industrials
    8%
  • Consumer Staples
    5%
  • Energy
    3%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    2%

The portfolio's sector allocation is heavily skewed towards technology, making up 36.69% of the total. Other sectors like financial services, communication services, and healthcare are also represented but to a lesser extent. This strong technology focus can drive growth but also increases susceptibility to sector-specific risks. To mitigate this, consider reallocating some funds to underrepresented sectors. This can help in spreading risk and potentially capturing growth opportunities in different economic environments, leading to a more resilient portfolio.

Regions Info

  • North America
    78%
  • Europe Developed
    14%
  • Japan
    4%
  • Asia
    2%
  • Australasia
    1%

Geographically, the portfolio is predominantly invested in North America, accounting for 78.47% of the allocation. Europe Developed and Japan also hold significant portions, but emerging markets are minimally represented. This geographic concentration can offer stability but may miss out on growth opportunities in emerging regions. To enhance geographic diversification, consider increasing exposure to emerging markets. This could provide access to faster-growing economies and help in achieving a more balanced global exposure, reducing dependency on any single region's economic performance.

Redundant positions Info

  • Xtrackers Artificial Intelligence &Big Data UCITS ETF 1C
    db x-trackers MSCI World Index UCITS DR 1C
    High correlation

The portfolio's assets are highly correlated, particularly between the two ETFs. This high correlation suggests limited diversification benefits, as both ETFs tend to move in the same direction. While this can enhance returns during market upswings, it also increases risk during downturns. To improve diversification, consider adding assets with lower correlation. This can help in reducing portfolio volatility and provide a smoother return profile over time. A diversified portfolio with uncorrelated assets can better withstand market fluctuations.

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 optimization chart suggests focusing on reducing overlapping assets before optimizing. The high correlation between the current ETFs limits diversification benefits. Moving along the efficient frontier can help achieve a riskier or more conservative portfolio. For a riskier approach, consider increasing exposure to growth sectors, while a more conservative strategy might involve adding stable, income-generating assets. Balancing risk and return is key for long-term success. Addressing correlation issues first will enhance diversification, improving the portfolio's resilience and performance potential.

Ongoing product costs Info

  • Xtrackers Artificial Intelligence &Big Data UCITS ETF 1C 0.35%
  • db x-trackers MSCI World Index UCITS DR 1C 0.17%
  • Weighted costs total (per year) 0.21%

The portfolio's total expense ratio (TER) is 0.21%, with the AI & Big Data ETF having a higher cost of 0.35% compared to the MSCI World ETF at 0.17%. This is relatively low, indicating cost-effective management. However, keeping investment costs in check is crucial for maximizing returns. Consider monitoring the TER and exploring options to reduce costs further. This can involve re-evaluating fund choices or negotiating fees where possible. Lowering costs can significantly impact long-term returns, enhancing overall portfolio performance.

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