Balanced Broadly Diversified Portfolio with High Correlation and Strong Historic Performance

Report created on Dec 3, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

The portfolio consists primarily of two ETFs: Vanguard FTSE All-World UCITS ETF (80%) and iShares Core S&P 500 UCITS ETF (20%). This composition offers a balanced and broadly diversified exposure to global markets, providing a mix of international and U.S. equities. The choice of ETFs ensures that the portfolio benefits from a cost-effective way to invest across a wide range of companies and sectors. However, the heavy reliance on these two ETFs may limit diversification benefits due to their overlap. It's important to consider whether this level of concentration aligns with the desired risk tolerance and investment goals.

Growth Info

The portfolio has demonstrated impressive historical performance with a CAGR of 13.93%, indicating strong growth over time. However, it has also experienced a maximum drawdown of -33.48%, highlighting potential volatility. This performance suggests that the portfolio can deliver substantial returns but may also be subject to significant fluctuations. Understanding the impact of these drawdowns on the portfolio's value is crucial for long-term planning. It's advisable to assess whether the historical performance aligns with the investor's financial objectives and risk appetite, ensuring that they are comfortable with the potential ups and downs.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio shows a promising future with an annualized return of 16.22%. The simulation provides a range of possible outcomes, with the 5th percentile yielding 148.17% and the 67th percentile reaching 848.44%. This analysis helps in understanding the potential variability of returns and the likelihood of achieving specific financial goals. While the projections are optimistic, it's essential to remember that they are based on historical data and assumptions. Regularly reviewing and adjusting the portfolio can help in adapting to changing market conditions and maintaining alignment with investment objectives.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, with 99.93% of assets in equities. This allocation provides significant exposure to the growth potential of the stock market but also increases susceptibility to market volatility. A small portion of the portfolio is allocated to cash and other assets, which may not significantly impact overall diversification. While the focus on equities aligns with a growth-oriented strategy, it may be beneficial to explore other asset classes to potentially reduce risk. Diversifying into bonds or other fixed-income investments could provide stability and income, balancing the portfolio's risk profile.

Sectors Info

  • Technology
    27%
  • Financials
    16%
  • Health Care
    11%
  • Consumer Discretionary
    11%
  • Industrials
    10%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Energy
    4%
  • Basic Materials
    4%
  • Utilities
    3%
  • Real Estate
    2%

The portfolio is diversified across multiple sectors, with a significant allocation to Technology (26.86%), Financial Services (15.51%), and Healthcare (10.79%). This sector allocation reflects a focus on industries with strong growth potential and resilience. However, the concentration in specific sectors may expose the portfolio to sector-specific risks. It's important to regularly review sector allocations to ensure they align with market trends and economic conditions. Adjusting sector weights can help in managing risk and capturing opportunities across different economic cycles. A balanced approach to sector diversification can enhance the portfolio's resilience and performance.

Regions Info

  • North America
    72%
  • Europe Developed
    12%
  • Asia Emerging
    5%
  • Japan
    5%
  • Asia Developed
    3%
  • Australasia
    2%
  • Africa/Middle East
    1%
  • Latin America
    1%

Geographically, the portfolio is heavily weighted towards North America (71.54%), followed by Europe Developed (12.12%) and Asia Emerging (4.97%). This allocation provides exposure to some of the world's largest and most developed markets. However, the concentration in North America may limit the benefits of geographic diversification. Exploring opportunities in underrepresented regions could enhance diversification and capture growth in emerging markets. Balancing geographic exposure can help mitigate risks associated with specific regional economic downturns and political uncertainties. A well-diversified geographic allocation can contribute to a more resilient and adaptable portfolio.

Redundant positions Info

  • iShares Core S&P 500 UCITS ETF USD (Acc)
    Vanguard FTSE All-World UCITS ETF USD Accumulation
    High correlation

The portfolio's assets are highly correlated, particularly between the iShares Core S&P 500 UCITS ETF and the Vanguard FTSE All-World UCITS ETF. This high correlation indicates that the assets tend to move in the same direction, potentially limiting diversification benefits. While correlated assets can offer consistent returns, they may not provide the risk reduction typically associated with diversification. To enhance diversification, it's advisable to consider adding assets with lower correlations. This approach can help in smoothing out returns and reducing the impact of market volatility on the portfolio's overall performance.

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, it's crucial to address the high correlation between assets, which limits diversification benefits. By focusing on reducing overlap, the portfolio can achieve better risk management. Moving along the efficient frontier allows for adjustments in risk and return profiles. To make the portfolio riskier, consider increasing exposure to growth-oriented assets. Conversely, for a more conservative approach, incorporate more stable investments. Optimization involves balancing risk and return, ensuring alignment with financial goals and risk tolerance. Exploring various asset combinations can help in achieving the desired portfolio characteristics.

Ongoing product costs Info

  • iShares Core S&P 500 UCITS ETF USD (Acc) 0.12%
  • Vanguard FTSE All-World UCITS ETF USD Accumulation 0.22%
  • Weighted costs total (per year) 0.20%

The portfolio's total expense ratio (TER) is 0.2%, reflecting the costs associated with the ETFs. This low-cost structure is a positive aspect, as it minimizes fees and maximizes returns. Keeping investment costs low is crucial for long-term success, as high fees can erode returns over time. It's important to regularly review the cost structure to ensure it remains competitive and aligned with the investor's financial objectives. While the current TER is favorable, exploring opportunities to further reduce costs or optimize the expense ratio can enhance the portfolio's overall performance and value.

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