Portfolio Shows Strong Performance But High Correlation Suggests Need for Diversification Strategy
Report created on Dec 3, 2024Risk profile
4/7
Diversification profile
4/5
Positions
-
VW Vanguard FTSE All-World UCITS ETF USD Accumulation
VWCE - IE00BK5BQT80 50.00% -
VU Vanguard S&P 500 UCITS Acc
VUAA - IE00BFMXXD54 35.00% -
VV VanEck Semiconductor UCITS ETF
VVSM - IE00BMC38736 15.00%
The portfolio is composed of three ETFs, with Vanguard FTSE All-World UCITS ETF USD Accumulation holding the largest share at 50%. The Vanguard S&P 500 UCITS Acc ETF makes up 35%, while the VanEck Semiconductor UCITS ETF comprises 15%. This allocation suggests a focus on broad global exposure with a significant tilt towards the U.S. market. The presence of a semiconductor-focused ETF adds a tech-heavy element to the mix. This composition offers a good balance between global diversification and sector-specific focus, but the portfolio might benefit from reducing overlap for better risk management.
Growth
Over time, the portfolio has demonstrated impressive historical performance, with a compound annual growth rate (CAGR) of 17.33%. This suggests that a hypothetical initial investment would have grown significantly. However, the portfolio also experienced a maximum drawdown of -20.39%, indicating potential volatility during market downturns. It's important for investors to understand this trade-off between high returns and potential risks. Given this performance, maintaining a balanced approach and regularly reviewing risk exposure can help optimize returns while managing downside risks.
Projection
A Monte Carlo simulation was conducted with 1,000 iterations to project future performance. This statistical method helps estimate the range of possible outcomes by simulating various market conditions. The results show a 50th percentile return of 1,102.92%, indicating strong growth potential. However, the 5th percentile return at 204.45% suggests there are scenarios with more modest gains. While the simulation highlights the portfolio's potential, it's crucial to remember that past performance doesn't guarantee future results. Investors should remain adaptable and prepared for varying market conditions.
Asset classes
- Stocks 100%
The portfolio is predominantly invested in stocks, accounting for 99.97% of the allocation. This heavy reliance on equities can offer substantial growth opportunities but also introduces higher volatility. The minimal presence of other asset classes, such as cash or bonds, might limit the portfolio's ability to cushion against market fluctuations. Diversifying into additional asset classes could help stabilize returns and reduce risk, especially during periods of market stress. Investors should consider their risk tolerance and investment goals when evaluating the need for broader asset class exposure.
Sectors
- Technology 39%
- Financials 13%
- Health Care 9%
- Consumer Discretionary 9%
- Industrials 8%
- Telecommunications 7%
- Consumer Staples 5%
- Energy 3%
- Basic Materials 3%
- Utilities 2%
- Real Estate 2%
Sector allocation within the portfolio is heavily skewed towards technology, which represents 39.2% of the total. Other significant sectors include financial services and healthcare. While this concentration in technology can drive high returns, it also increases vulnerability to sector-specific downturns. Balancing exposure across various sectors can enhance diversification and mitigate sector-specific risks. Investors should evaluate whether their sector allocations align with their risk appetite and long-term objectives, potentially rebalancing to achieve a more even distribution across industries.
Regions
- North America 79%
- Europe Developed 9%
- Asia Developed 4%
- Asia Emerging 3%
- Japan 3%
- Australasia 1%
- Africa/Middle East 1%
Geographically, the portfolio is heavily weighted towards North America, particularly the U.S., which comprises 78.83% of the allocation. While this focus can capitalize on the growth of U.S. markets, it may also expose the portfolio to regional risks. Other regions, such as Europe and Asia, are underrepresented. Increasing geographic diversification could help mitigate regional risks and capture growth opportunities in different markets. Investors should assess their geographic exposure in light of their investment strategy to ensure a well-rounded global allocation.
Redundant positions
-
High correlationVanguard S&P 500 UCITS AccVanguard FTSE All-World UCITS ETF USD Accumulation
The portfolio exhibits high correlation between the Vanguard S&P 500 UCITS Acc and Vanguard FTSE All-World UCITS ETF USD Accumulation. This correlation indicates that these assets tend to move in the same direction, offering limited diversification benefits. Reducing such overlap could enhance the portfolio's resilience by introducing assets that behave differently under various market conditions. Investors might consider adding uncorrelated assets to achieve better diversification, improving the risk-return profile of the portfolio.
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, it's crucial to address the high correlation between some assets. By reducing overlap, the portfolio can achieve better diversification and risk management. To move towards a riskier portfolio, investors could consider increasing exposure to sectors or regions with higher growth potential. Conversely, for a more conservative approach, allocating more to bonds or other stable asset classes could reduce volatility. Navigating along the efficient frontier allows investors to tailor their risk-return profile, aligning their portfolio with personal financial goals and risk tolerance.
Ongoing product costs
- Vanguard S&P 500 UCITS Acc 0.07%
- VanEck Semiconductor UCITS ETF 0.35%
- Vanguard FTSE All-World UCITS ETF USD Accumulation 0.22%
- Weighted costs total (per year) 0.19%
The portfolio's total expense ratio (TER) is 0.19%, which is relatively low and reflects cost-effective investment choices. Lower costs can significantly impact net returns over time, enhancing the overall performance of the portfolio. It's essential to remain vigilant about fees and expenses, as they can erode returns. Investors should continue to prioritize low-cost investment options while ensuring that their choices align with their broader investment strategy and objectives. Regularly reviewing and optimizing costs can contribute to achieving long-term financial success.
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