High Growth Potential but Limited Diversification in a Tech-Heavy Portfolio
Report created on Jul 23, 2024Risk profile
5/7
Diversification profile
2/5
Positions
-
QQ Invesco NASDAQ 100 ETF
QQQM - US46138G6492 100.00%
The portfolio is entirely invested in the Invesco NASDAQ 100 ETF, which means it holds a variety of large-cap stocks predominantly from the technology sector. This ETF is known for its high growth potential but also comes with significant volatility. The lack of diversification across different asset classes and sectors increases the portfolio's risk. A more balanced approach could potentially mitigate some of this risk while still capturing growth opportunities.
Growth
Historically, the portfolio has shown strong performance with a compound annual growth rate (CAGR) of 14.81%. However, it has also experienced a maximum drawdown of -35.03%, indicating significant volatility. This means that while the portfolio can deliver high returns, it can also suffer substantial losses during market downturns. Investors should be prepared for these fluctuations and have a long-term investment horizon to weather the ups and downs.
Projection
Using a Monte Carlo simulation, which runs multiple scenarios to predict future performance, the portfolio shows a wide range of potential outcomes. With a hypothetical initial investment, the 5th percentile projects an end value of 86.87%, while the 50th and 67th percentiles show 634.42% and 1,001.55%, respectively. The annualized return across all simulations is 17.74%, indicating strong potential but also considerable uncertainty. This underscores the importance of being prepared for various market conditions.
Asset classes
- Stocks 100%
The portfolio is heavily skewed towards stocks, making up 99.9581% of the allocation, with a tiny fraction held in cash. This concentration in a single asset class increases risk, as the portfolio's performance is highly dependent on the stock market. Diversifying into other asset classes like bonds or commodities could help reduce overall risk and provide more stable returns, especially during periods of stock market volatility.
Sectors
- Technology 49%
- Telecommunications 16%
- Consumer Discretionary 13%
- Consumer Staples 7%
- Health Care 6%
- Industrials 5%
- Basic Materials 2%
- Utilities 1%
- Financials 1%
- Energy 1%
The sector allocation is dominated by technology at 49.31463%, followed by communication services and consumer cyclicals. This heavy concentration in a few sectors increases the portfolio's vulnerability to sector-specific downturns. Diversifying into sectors like utilities or financial services could provide more stability and reduce the risk associated with being overly concentrated in high-growth but volatile sectors.
Regions
- North America 97%
- Europe Developed 2%
- Asia Emerging 1%
- Latin America 1%
Geographically, the portfolio is overwhelmingly invested in North America, which accounts for 97.099% of the allocation. This lack of geographic diversification exposes the portfolio to risks specific to the North American market. Including investments from Europe, Asia, and other regions could help mitigate these risks and provide more balanced exposure to global economic growth.
Dividends
- Invesco NASDAQ 100 ETF 0.70%
- Weighted yield (per year) 0.70%
The portfolio's dividend yield is not explicitly provided, but given the high growth focus, it is likely to be relatively low. High-growth stocks often reinvest profits back into the business rather than paying out dividends. For investors seeking income, incorporating dividend-paying stocks or other income-generating assets could provide a more balanced approach.
Ongoing product costs
- Invesco NASDAQ 100 ETF 0.15%
- Weighted costs total (per year) 0.15%
The portfolio's total expense ratio (TER) is 0.15%, which is relatively low and helps keep investment costs down. Lower costs are beneficial as they can significantly impact long-term returns. However, the low diversification and high concentration in a single ETF mean that other risks may outweigh the benefits of low costs. A more diversified portfolio might incur slightly higher costs but could provide better risk-adjusted returns.
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