Balanced Portfolio with High Financial Services Exposure and Limited Diversification

Report created on Jul 14, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

1/5
Single-Focused
Less diversification More diversification

Positions

The portfolio is predominantly composed of Canadian financial stocks, with a heavy concentration in the Bank of Montreal and Canadian Imperial Bank of Commerce. This allocation represents a single-focused diversification strategy, heavily leaning towards financial services. The portfolio also includes a mix of ETFs and common stocks, with a small allocation to other sectors such as technology and infrastructure. This composition indicates a preference for stability and income from dividends, but it lacks diversification across different industries and asset classes, which could expose it to sector-specific risks.

Growth Info

Historically, the portfolio has delivered a compound annual growth rate (CAGR) of 7.97%, which is a respectable return for a balanced risk profile. However, the portfolio experienced a maximum drawdown of -25.99%, indicating significant volatility during market downturns. The performance is concentrated in just a few days, which is common for portfolios with high exposure to specific sectors. While the returns are decent, the volatility suggests a need for diversification to potentially reduce risk and improve stability during market fluctuations.

Projection Info

Using a Monte Carlo simulation with a hypothetical initial investment, the portfolio's future performance shows a wide range of outcomes. The simulation suggests a 5th percentile return of -34.93% and a median return of 192.35%, with 67% of simulations resulting in positive returns. While the potential for high returns exists, the significant downside risk highlights the importance of diversification. The annualized return of 11.18% across simulations suggests that the portfolio could benefit from a more diversified approach to potentially enhance returns and mitigate risks.

Asset classes Info

  • Stocks
    87%
  • US Equity
    5%

The portfolio's asset class allocation is heavily skewed towards stocks, particularly Canadian financial stocks, which make up 86.88% of the portfolio. There is a minor allocation to US equities and a negligible amount in cash. This concentration in a single asset class could lead to increased volatility and risk, especially during economic downturns affecting the financial sector. Diversifying across different asset classes, such as bonds or international equities, could help balance the risk and provide more stability to the portfolio's performance.

Sectors Info

  • Financials
    87%
  • Technology
    4%
  • No data
    4%
  • Industrials
    1%
  • Energy
    1%
  • Consumer Discretionary
    1%
  • Utilities
    1%
  • Consumer Staples
    1%
  • Health Care
    1%

The sector allocation is overwhelmingly concentrated in financial services, which accounts for 86.53% of the portfolio. Other sectors, such as technology, industrials, and energy, have minimal representation. This lack of sector diversification exposes the portfolio to risks specific to the financial industry, such as regulatory changes or economic downturns. To reduce sector-specific risks, consider reallocating some investments into other sectors. This could provide a more balanced exposure to different economic cycles and potentially enhance long-term returns.

Regions Info

  • North America
    89%
  • Asia Emerging
    7%
  • No data
    4%
  • Europe Developed
    1%

Geographically, the portfolio is heavily weighted towards North America, particularly Canada, with 89.07% of assets allocated to this region. There is minimal exposure to emerging markets and developed regions outside North America. This geographic concentration increases vulnerability to regional economic shifts and currency fluctuations. Expanding the geographic diversification by including more international equities could provide exposure to different economic growth opportunities and reduce reliance on the North American market.

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 to achieve a more efficient risk-return balance. While the current portfolio has a certain expected return, exploring the efficient frontier could potentially yield higher returns at the same risk level. By adjusting the asset allocation, investors can move towards a more optimal portfolio, either by reducing risk or enhancing returns. Focusing on diversification across sectors and geographic regions can help achieve a more balanced and efficient portfolio, ultimately leading to improved performance and reduced volatility.

Dividends Info

  • Bank of Montreal 4.60%
  • iShares Global Infrastructure Common Class 2.80%
  • Canadian Imperial Bank Of Commerce 4.00%
  • Evolve European Banks Enhanced Yield ETF Hedged CAD 11.30%
  • Royal Bank of Canada 3.20%
  • Toronto Dominion Bank 5.20%
  • TD Active Global Enhanced Dividend 2.00%
  • iShares India Index ETF 0.30%
  • iShares US Small Cap (CAD Hedged) 0.90%
  • Weighted yield (per year) 3.79%

The portfolio offers a total dividend yield of 3.79%, with significant contributions from the Bank of Montreal and Canadian Imperial Bank of Commerce. High-yielding stocks provide a steady income stream, which can be attractive for income-focused investors. However, relying heavily on dividends from a concentrated sector may pose risks if financial conditions change. To maintain a stable income, consider diversifying dividend sources across different sectors and regions, which can help ensure a more reliable and diversified income stream.

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