A growth-focused portfolio with high risk and limited diversification in Canadian assets

Report created on Jan 3, 2025

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

1/5
Single-Focused
Less diversification More diversification

Positions

The portfolio is heavily weighted towards ETFs, with the Vanguard S&P 500 Index ETF making up over 40% of the portfolio. This indicates a strong focus on US equities, which is common in growth portfolios. However, the significant allocation to the Purpose Bitcoin ETF introduces high volatility. In contrast, common stocks like MDA Ltd and Air Canada add some diversification but remain a smaller portion. Comparing this to a typical balanced portfolio, which often includes bonds and international equities, the current composition is more aggressive, emphasizing growth over stability. To enhance diversification, consider adding assets with different risk profiles.

Growth Info

Historically, the portfolio has shown impressive growth with a Compound Annual Growth Rate (CAGR) of 20.63%, which is well above average market returns. However, the Max Drawdown of -43.56% highlights the risk of significant losses during market downturns. Comparing this to a standard index fund, which typically has a lower drawdown, the high volatility of this portfolio becomes evident. While past performance can provide insights, it's crucial to remember that it doesn't guarantee future results. For investors seeking to balance growth and risk, a more diversified approach might be beneficial.

Projection Info

Using Monte Carlo simulations, which project potential future outcomes based on historical data, the portfolio shows a wide range of possible returns. The 50th percentile projects a 270.15% return, while the 5th percentile suggests a potential loss of 69.2%. This variability highlights the uncertainty inherent in high-risk portfolios. It's important to note that such simulations rely on past data, which may not fully capture future market conditions. Investors should be prepared for both significant gains and potential losses, and consider adjusting the portfolio to align with their risk tolerance and financial goals.

Asset classes Info

  • US Equity
    45%
  • Stocks
    22%

The asset allocation is predominantly in US equities, accounting for nearly half of the portfolio. This heavy concentration in one asset class limits diversification, increasing exposure to market-specific risks. Additionally, the allocation to Bitcoin further skews the risk profile, given its high volatility. In contrast, a well-diversified portfolio typically includes a mix of equities, bonds, and alternative investments. To enhance diversification, consider incorporating other asset classes that can provide stability during market fluctuations, such as fixed income or international equities.

Sectors Info

  • Technology
    20%
  • Industrials
    18%
  • Consumer Discretionary
    8%
  • Financials
    6%
  • Telecommunications
    6%
  • Health Care
    4%
  • Consumer Staples
    2%
  • Energy
    1%
  • Utilities
    1%
  • Real Estate
    1%
  • Basic Materials
    1%

The portfolio's sector allocation is notably concentrated in Technology and Industrials, making up a significant portion. This concentration can lead to increased volatility, especially in response to sector-specific events. For example, technology-heavy portfolios may experience heightened volatility during interest rate changes. Compared to a more balanced sector allocation, this portfolio could benefit from diversifying across other sectors like Healthcare or Consumer Defensive, which often provide stability during economic downturns. Broadening sector exposure can help mitigate risks associated with sector-specific downturns.

Regions Info

  • North America
    68%

The geographic allocation is heavily focused on North America, with over 67% exposure, while other regions like Europe and Asia are minimally represented. This concentration may limit the portfolio's ability to benefit from global growth opportunities and exposes it to regional economic risks. In contrast, a globally diversified portfolio typically includes significant allocations to various regions to capture growth across different markets. To enhance geographic diversification, consider adding exposure to emerging markets or developed regions outside North America, which can provide additional growth potential and risk mitigation.

Redundant positions Info

  • Vanguard S&P 500 Index ETF
    Vanguard US Total Market
    High correlation

The portfolio includes highly correlated assets, particularly the Vanguard S&P 500 Index ETF and the Vanguard US Total Market. High correlation means these assets tend to move together, reducing the diversification benefits. During market downturns, this can lead to higher overall portfolio volatility. To improve risk management, consider reducing exposure to overlapping assets and incorporating investments with lower correlation. This adjustment can help achieve a more balanced risk-return profile by spreading risk across different market segments and asset types.

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 could benefit from optimization using the Efficient Frontier, which aims to achieve the best possible risk-return ratio. However, before optimizing, it's crucial to address the current high correlation among assets, which limits diversification benefits. By adjusting allocations and potentially replacing highly correlated assets, the portfolio can move closer to an optimal balance. Remember, the Efficient Frontier focuses on maximizing returns for a given level of risk, but achieving true diversification may require broader changes beyond just asset reallocation.

Dividends Info

  • Evolve FANGMA Index ETF Hedged CAD 0.10%
  • Spin Master Corp 0.90%
  • Vanguard S&P 500 Index ETF 0.50%
  • Vanguard US Total Market 0.50%
  • Weighted yield (per year) 0.24%

The portfolio's dividend yield is relatively low at 0.24%, which is typical for growth-focused portfolios that prioritize capital appreciation over income. While dividends can provide a steady income stream, their relevance depends on the investor's goals. For those seeking higher income, increasing exposure to dividend-paying stocks or ETFs could be beneficial. However, if the primary goal is growth, maintaining the current focus on capital appreciation may be appropriate. It's important to align dividend strategies with overall investment objectives.

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