Moderate Growth Portfolio with High Technology Exposure and Overlapping Assets Needs Diversification for Optimal Performance

Report created on Jun 13, 2024

Risk profile Info

5/7
Growth
← Less risk More risk →

Diversification profile Info

3/5
Moderately Diversified
← Less diversification More diversification →

Positions

The portfolio is mainly composed of four ETFs with a strong focus on U.S. equities. Vanguard S&P 500 ETF holds the largest share at 50%, followed by Schwab U.S. Large-Cap Growth ETF and VanEck Semiconductor ETF each at 20%, and Invesco NASDAQ 100 ETF at 10%. This allocation suggests a growth-oriented strategy, heavily weighted towards the technology sector. While the portfolio is moderately diversified across sectors, the high concentration in technology could expose it to sector-specific risks. A more balanced diversification might mitigate potential volatility and enhance stability.

Growth Info

Historically, this portfolio has shown impressive performance with a compound annual growth rate (CAGR) of 19.26%. However, it experienced a maximum drawdown of -32.09%, indicating significant vulnerability during market downturns. The fact that only 21 days accounted for 90% of returns highlights the portfolio’s reliance on short bursts of high performance. To sustain such growth while minimizing drawdowns, it may be beneficial to consider strategies that enhance stability, especially in volatile markets, without sacrificing growth potential.

Projection Info

Using a Monte Carlo simulation, which models potential future performance by running numerous scenarios, the portfolio shows promising outcomes. With a hypothetical initial investment, the 50th percentile projection is a return of 1,078.87%, and the 67th percentile at 1,601.12%. The annualized return of all simulations is 21.79%, suggesting robust growth potential. However, the high-risk nature of the portfolio means there’s a wide range of possible outcomes. Diversifying further could help smooth these projections, providing more consistent returns across various market conditions.

Asset classes Info

  • Stocks
    100%

The asset class allocation is heavily skewed towards stocks, making up nearly 100% of the portfolio. This indicates a strong growth orientation but also implies high exposure to market volatility. While this can be beneficial in bull markets, it can lead to substantial losses during downturns. A more balanced asset allocation, potentially incorporating bonds or other fixed-income securities, could reduce volatility and provide a buffer against market fluctuations, aligning better with long-term growth and stability goals.

Sectors Info

  • Technology
    51%
  • Consumer Discretionary
    9%
  • Telecommunications
    9%
  • Health Care
    8%
  • Financials
    8%
  • Industrials
    5%
  • Consumer Staples
    4%
  • Energy
    2%
  • Utilities
    2%
  • Basic Materials
    1%
  • Real Estate
    1%

The sector allocation reveals a significant tilt towards technology, which constitutes over 51% of the portfolio. Other sectors like Consumer Cyclicals, Communication Services, and Healthcare have moderate representation. This heavy concentration in technology suggests the portfolio could be highly sensitive to changes in this sector. To mitigate sector-specific risks, spreading investments more evenly across various sectors could be advantageous. This would not only reduce reliance on technology but also capture growth opportunities in other booming sectors.

Regions Info

  • North America
    95%
  • Asia Developed
    3%
  • Europe Developed
    2%

Geographically, the portfolio is overwhelmingly concentrated in North America, accounting for over 95% of the allocation. This exposes it to region-specific economic and political risks. While this focus may benefit from the robust U.S. market, diversifying into other regions could offer growth opportunities in emerging markets and reduce dependency on the North American economy. A more globally diversified portfolio could enhance resilience and tap into growth in other parts of the world.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Schwab U.S. Large-Cap Growth ETF
    High correlation

Within the portfolio, there is a high correlation between the Invesco NASDAQ 100 ETF and the Schwab U.S. Large-Cap Growth ETF. This overlap suggests that these assets move in similar directions, providing limited diversification benefits. Reducing these overlaps by introducing assets with lower correlation could enhance diversification, reducing volatility and improving risk-adjusted returns. Exploring alternatives that offer different exposure might lead to a more balanced and resilient 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 issue of overlapping assets that offer no diversification benefits. By reducing these high correlations, the portfolio can achieve better diversification and potentially improve risk-adjusted returns. Moving along the efficient frontier, one can opt for a riskier portfolio by increasing exposure to high-growth sectors or a more conservative one by incorporating bonds or dividend-paying stocks. It's important to balance growth with stability to align with long-term financial goals. Prioritizing diversification can lead to a more resilient portfolio.

Dividends Info

  • Invesco NASDAQ 100 ETF 0.60%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • VanEck Semiconductor ETF 0.40%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 0.82%

The portfolio has a total dividend yield of 0.82%, with the Vanguard S&P 500 ETF contributing the most at 1.2%. While this yield provides some income, it is relatively low, reflecting the growth-oriented nature of the portfolio. Investors seeking higher income might consider increasing exposure to dividend-paying assets. However, this should be balanced against the portfolio’s growth objectives. Enhancing the dividend yield could provide additional income, potentially stabilizing returns during market downturns.

Ongoing product costs Info

  • Invesco NASDAQ 100 ETF 0.15%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • VanEck Semiconductor ETF 0.35%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.11%

The total expense ratio (TER) for the portfolio is 0.11%, which is quite low and indicates cost efficiency. The Vanguard S&P 500 ETF and Schwab U.S. Large-Cap Growth ETF have particularly low expense ratios, contributing to the overall cost-effectiveness. Keeping costs low is crucial for maximizing net returns over time. While the current costs are favorable, it’s important to continually monitor and assess any changes in expense ratios that could impact overall performance. Maintaining this cost-efficiency is a positive aspect of the portfolio.

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