Balanced Portfolio with Broad Diversification and High Correlation Between Major Holdings

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 predominantly composed of two ETFs: Vanguard FTSE All-World UCITS ETF USD Accumulation and iShares Core MSCI World UCITS ETF USD (Acc). With over 95% allocation in the Vanguard ETF, it indicates a strong preference for a global market exposure. The iShares ETF takes up a smaller portion, contributing to the overall diversification. This composition reflects a balanced risk profile, aiming to capture global equity market returns. While the diversification is broad, the portfolio may benefit from assessing the overlap between the two ETFs to ensure optimal risk-return balance.

Growth Info

Historically, the portfolio has performed well with a compound annual growth rate (CAGR) of 13.24%. However, it has experienced a significant maximum drawdown of -33.45%, indicating potential volatility. The returns are concentrated in a few trading days, highlighting the importance of staying invested during market fluctuations. This performance suggests that while the portfolio has delivered strong returns, it also carries inherent risks that should be considered. Regularly reviewing the performance in context with the risk tolerance is crucial for maintaining alignment with long-term investment goals.

Projection Info

Using a Monte Carlo simulation with 1,000 simulations, the portfolio's forward projection shows a median return of 511.5% for a hypothetical initial investment. The annualized return across all simulations is 14.64%, with a high probability of positive returns. Monte Carlo simulations provide a range of possible outcomes, helping to understand potential risks and returns. This projection underscores the portfolio's potential for substantial growth, but also the variability in outcomes. Considering these insights, maintaining a diversified approach and periodically reassessing the portfolio's risk exposure is advisable.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, accounting for nearly 100% of its allocation. This concentration in equities indicates a growth-oriented strategy, aligning with a balanced risk profile. While stocks offer potential for higher returns, they also come with increased volatility. The minimal presence of other asset classes suggests limited diversification benefits from non-equity investments. To enhance risk management, introducing a more balanced mix of asset classes, such as bonds or alternative investments, could provide stability during market downturns.

Sectors Info

  • Technology
    25%
  • Financials
    16%
  • Health Care
    11%
  • Consumer Discretionary
    11%
  • Industrials
    10%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Energy
    4%
  • Basic Materials
    4%
  • Utilities
    3%
  • Real Estate
    2%

The sector allocation is well-distributed across various industries, with technology, financial services, and healthcare leading the way. This sector diversification helps mitigate risks associated with any single industry. However, the significant weighting in technology could expose the portfolio to sector-specific volatility. Maintaining a balanced sector allocation is crucial for managing risks and capturing opportunities across different economic cycles. Regularly reviewing sector exposures and adjusting allocations as market conditions change can help optimize portfolio performance.

Regions Info

  • North America
    65%
  • Europe Developed
    15%
  • Asia Emerging
    6%
  • Japan
    6%
  • Asia Developed
    4%
  • Australasia
    2%
  • Africa/Middle East
    1%
  • Latin America
    1%

Geographically, the portfolio is heavily skewed towards North America, comprising over 65% of the allocation. While this provides exposure to a major economic region, it may limit diversification benefits from other global markets. Europe and Asia also contribute to the geographic mix, offering some international exposure. To further enhance diversification, considering a more balanced geographic allocation could reduce region-specific risks and capture growth opportunities in emerging markets. A well-rounded geographic distribution is key to achieving a truly diversified global portfolio.

Redundant positions Info

  • iShares Core MSCI World UCITS ETF USD (Acc)
    Vanguard FTSE All-World UCITS ETF USD Accumulation
    High correlation

The portfolio's assets are highly correlated, particularly between the two main ETFs. This high correlation suggests that both ETFs move in similar directions, offering limited diversification benefits. While correlation is expected between global equity ETFs, the overlap may not provide the desired risk reduction. To enhance diversification, consider reducing overlapping holdings and exploring investments with lower correlations. This approach can help mitigate risks and improve the portfolio's overall resilience to 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.

Before optimizing the portfolio, addressing the high correlation between the major holdings is crucial. By reducing overlapping assets, the portfolio can achieve better diversification benefits. Once this is addressed, moving along the efficient frontier can help tailor the portfolio to be riskier or more conservative, depending on the investor's risk appetite. A more conservative portfolio might include a higher allocation to bonds or other asset classes, while a riskier portfolio could maintain a strong equity focus. Prioritizing diversification and risk management will enhance overall portfolio efficiency.

Ongoing product costs Info

  • iShares Core MSCI World UCITS ETF USD (Acc) 0.20%
  • Vanguard FTSE All-World UCITS ETF USD Accumulation 0.22%
  • Weighted costs total (per year) 0.22%

The portfolio's total expense ratio (TER) is 0.22%, reflecting relatively low costs associated with the chosen ETFs. Low costs are advantageous as they help maximize net returns over time. Keeping investment costs low is a key principle for optimizing portfolio performance. While the current costs are competitive, it's important to remain vigilant about any changes in fees. Continuously monitoring and minimizing costs can significantly impact long-term investment outcomes, making it an essential aspect of portfolio management.

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