A cautious portfolio with high diversification and limited emerging market exposure

Report created on Jan 6, 2025

Risk profile Info

3/7
Cautious
Less risk More risk

Diversification profile Info

5/5
Highly Diversified
Less diversification More diversification

Positions

This portfolio is composed mainly of equity ETFs, with a significant focus on North American markets. The largest holding is the BMO S&P 500 ETF, representing 37% of the portfolio, followed by the BMO S&P/TSX Capped Composite at 25%. Smaller allocations include international developed markets, small-cap US stocks, and a minor exposure to emerging markets. The inclusion of a high-interest savings ETF adds a conservative element. Compared to typical balanced portfolios, this one leans heavily toward equities. To enhance diversification, consider increasing exposure to underrepresented asset classes, such as bonds or alternative investments, which can provide stability during market downturns.

Growth Info

Historically, the portfolio has delivered a strong Compound Annual Growth Rate (CAGR) of 10.15%, with a maximum drawdown of -16.97%. This performance suggests resilience during market fluctuations. However, it's crucial to remember that past performance doesn't guarantee future results. The portfolio's ability to recover from drawdowns quickly is commendable, but investors should remain aware of potential volatility. To maintain this performance, consider periodic rebalancing to ensure alignment with your risk tolerance and investment goals, especially if market conditions change.

Projection Info

The Monte Carlo simulation, which uses historical data to predict potential future outcomes, shows favorable projections for this portfolio. With 1,000 simulations, the median (50th percentile) outcome projects a 165.78% increase in value, while the 5th percentile still shows positive returns. This suggests a high likelihood of achieving satisfactory returns. However, it's essential to note that these projections are not guarantees. Investors should use these insights as a guide for potential outcomes and remain vigilant about changing market conditions that could impact these projections.

Asset classes Info

  • US Equity
    37%
  • Stocks
    30%
  • Cash
    3%

The portfolio's asset class allocation is heavily weighted toward equities, with nearly 67% in US and Canadian stocks. Cash and other minor asset classes make up a small portion. This equity-heavy allocation can drive growth but also increases exposure to market volatility. Compared to benchmark allocations, this portfolio lacks fixed-income assets, which could provide a buffer during downturns. To enhance risk management, consider introducing bonds or other fixed-income instruments, which can stabilize returns and offer diversification benefits.

Sectors Info

  • Financials
    18%
  • Technology
    17%
  • Industrials
    10%
  • Consumer Discretionary
    8%
  • Energy
    6%
  • Health Care
    6%
  • Telecommunications
    6%
  • Consumer Staples
    5%
  • Basic Materials
    5%
  • Utilities
    3%
  • Real Estate
    2%

Sector-wise, the portfolio shows a balanced allocation, with significant exposure to financial services and technology. These sectors align with common benchmarks, indicating a strong diversification strategy. However, the portfolio's concentration in these areas may lead to higher volatility during sector-specific downturns. For instance, tech-heavy portfolios might suffer during interest rate hikes. To mitigate this risk, consider adjusting sector weights to ensure a more even distribution across various industries, potentially adding defensive sectors like utilities or consumer staples.

Regions Info

  • North America
    67%
  • Europe Developed
    9%
  • Japan
    4%
  • Asien Schwellenländer
    3%
  • Asien
    2%
  • Australasia
    1%
  • Afrika/Mittlerer Osten
    1%

Geographically, the portfolio is predominantly focused on North America, with 66.9% exposure, followed by minor allocations in Europe and Asia. This concentration aligns with common benchmarks but may limit diversification benefits. The limited exposure to emerging markets, at just 5%, could mean missing out on growth opportunities in rapidly developing regions. To enhance geographic diversification, consider increasing allocations to underrepresented areas, which can help spread risk and capture potential growth in global markets.

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's current risk-return profile could be optimized using the Efficient Frontier, a concept that identifies the best possible risk-return ratio. While the current portfolio is well-diversified, adjustments in asset allocation could enhance returns without increasing risk. The optimal portfolio has an expected return of 3.89% with a risk level of 0.76%. Consider rebalancing the current holdings to align more closely with this efficient allocation, ensuring that the portfolio remains aligned with personal risk tolerance and investment goals.

Dividends Info

  • Horizons High Interest Savings ETF 2.40%
  • Vanguard FTSE Emerging Markets 0.30%
  • Vanguard FTSE Developed All Cap ex North Amer Idx ETF 1.50%
  • BMO S&P/TSX Capped Composite 1.40%
  • BMO Low Volatility Canadian Equity 1.20%
  • BMO S&P US Small Cap Index ETF 0.60%
  • BMO S&P 500 0.50%
  • Weighted yield (per year) 0.97%

The portfolio's overall dividend yield is relatively low at 0.97%, with the highest contribution from the Horizons High Interest Savings ETF at 2.4%. While dividends provide a steady income stream, this portfolio prioritizes growth through capital appreciation. For investors seeking higher income, consider reallocating funds to dividend-focused ETFs or stocks that offer higher yields. However, ensure that any changes align with your overall investment strategy and risk tolerance, as chasing high yields can sometimes lead to increased risk.

Ongoing product costs Info

  • BMO Low Volatility Canadian Equity 0.35%
  • Weighted costs total (per year) 0.02%

The portfolio's costs are impressively low, with a Total Expense Ratio (TER) of 0.02%. This cost efficiency supports better long-term performance by minimizing the drag on returns. Low fees are beneficial, especially in a cautious portfolio, as they allow more of the investment's growth to benefit the investor. Maintaining this cost-effective approach is crucial, but periodically reviewing the portfolio for lower-cost alternatives can further optimize returns. Consider comparing expense ratios of similar ETFs to ensure continued cost efficiency.

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