A high-risk growth-focused portfolio with low diversification and significant tech sector exposure
Report created on Dec 10, 2024Risk profile
5/7
Diversification profile
2/5
Positions
-
SP Invesco S&P 500® Momentum ETF
SPMO - US46138E3392 100.00%
The portfolio is entirely composed of the Invesco S&P 500® Momentum ETF, which is a single exchange-traded fund focusing on momentum stocks within the S&P 500. This means that the portfolio is highly concentrated in one type of asset, which can lead to increased risk but also potentially higher returns. The focus on momentum stocks implies that the portfolio is designed to capture stocks that have performed well recently, aiming to continue this trend. For a more balanced risk, consider diversifying into other asset classes or funds.
Growth
Historically, this portfolio has shown a strong compound annual growth rate (CAGR) of 21.47%, indicating robust past performance. However, it also experienced a significant maximum drawdown of -30.93%, highlighting the volatility associated with momentum investing. The fact that only 35 days account for 90% of returns suggests that gains are concentrated and timing is crucial. While past performance can provide insights, it does not guarantee future results. Consider strategies to mitigate potential downturns, such as diversifying or setting stop-loss orders.
Projection
Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was projected. The median (50th percentile) forecast suggests a potential growth of 1,560.91%, while the more optimistic 67th percentile projects a 2,214.71% increase. However, it's crucial to understand that these projections are based on historical data, which may not account for future market changes. The simulation shows a high probability of positive returns, but it's wise to remain cautious and prepared for less favorable outcomes by considering risk management strategies.
Asset classes
- Stocks 100%
The portfolio's asset allocation is overwhelmingly skewed towards stocks, with a negligible cash component. This heavy stock concentration can lead to higher potential returns but also increased volatility, especially during market downturns. The lack of diversity in asset classes means that the portfolio is not well-protected against market fluctuations. To enhance stability, consider including other asset classes like bonds or commodities, which can provide a counterbalance to equities and reduce overall risk.
Sectors
- Financials 23%
- Technology 23%
- Consumer Discretionary 13%
- Industrials 10%
- Health Care 10%
- Telecommunications 9%
- Consumer Staples 7%
- Energy 2%
- Utilities 2%
- Real Estate 1%
- Basic Materials 1%
Sector allocation reveals a significant concentration in Financial Services and Technology, each comprising over 23% of the portfolio. While these sectors have historically driven growth, they can also be volatile. The limited exposure to other sectors like Utilities and Real Estate suggests a lack of balance, which might expose the portfolio to sector-specific risks. To mitigate these risks, consider reallocating some investments to underrepresented sectors, thereby achieving a more balanced exposure across different industries.
Regions
- North America 99%
- Europe Developed 1%
The portfolio's geographic exposure is heavily concentrated in North America, accounting for over 98% of the investments. This lack of international diversification can make the portfolio susceptible to regional economic downturns or policy changes. By diversifying geographically, investors can potentially reduce risk and tap into growth opportunities in other regions. Consider adding exposure to emerging markets or developed economies outside North America to balance the portfolio and enhance its resilience against local market fluctuations.
Dividends
- Invesco S&P 500® Momentum ETF 0.40%
- Weighted yield (per year) 0.40%
The portfolio's dividend yield is relatively low, at 0.4%, reflecting its focus on growth rather than income. While dividends can provide a steady income stream and contribute to total returns, momentum investing typically prioritizes capital appreciation over dividends. For investors seeking income, consider supplementing this portfolio with dividend-focused investments that offer higher yields. This can provide a balance between growth and income, catering to both capital appreciation and cash flow needs.
Ongoing product costs
- Invesco S&P 500® Momentum ETF 0.13%
- Weighted costs total (per year) 0.13%
The portfolio's total expense ratio (TER) is 0.13%, which is relatively low and favorable for long-term investment. Lower costs mean more of your returns are retained rather than eaten up by fees. However, even small fee reductions can significantly impact long-term returns, especially with compound growth. Regularly review and compare the expense ratios of similar ETFs or funds to ensure you are getting the best value. Consider switching to lower-cost options if available without sacrificing performance.
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