Balanced portfolio with global equity exposure but high concentration in North America

Report created on Feb 2, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

This portfolio is composed of two ETFs: the Vanguard S&P 500 UCITS ETF and the Vanguard FTSE All-World UCITS ETF, each occupying 50% of the portfolio. This setup provides exposure primarily to large-cap stocks, reflecting a common benchmark composition. The portfolio's structure leans heavily towards equities, offering potential for growth but also exposing it to market volatility. While the two ETFs contribute to broad diversification, the overlap in holdings, particularly in U.S. equities, may limit the diversification benefits. To enhance diversification, consider incorporating assets that are less correlated with the current holdings.

Growth Info

Historically, this portfolio has delivered a strong CAGR of 14.41%, indicating robust growth over time. This performance surpasses many traditional benchmarks, highlighting the effectiveness of the chosen ETFs in capturing market returns. However, the max drawdown of -25.24% suggests that the portfolio is susceptible to significant fluctuations during market downturns. While past performance is a useful indicator, it's important to remember that it doesn't guarantee future results. To mitigate potential drawdowns, consider strategies such as diversifying into less correlated asset classes or sectors.

Projection Info

Using Monte Carlo simulations, which employ historical data to project future outcomes, this portfolio shows an optimistic forward projection. The simulations indicate a 50th percentile return of 597.3%, with all simulations showing positive returns. However, it's crucial to understand that these projections are based on historical data and assumptions, which may not hold true in the future. While the outlook is positive, maintaining a balanced approach by regularly reviewing and adjusting the portfolio can help manage risks and align with evolving market conditions.

Asset classes Info

  • Stocks
    100%

The portfolio is entirely allocated to stocks, providing exposure to global equity markets. While this allocation supports growth potential, it lacks diversification across different asset classes such as bonds or real estate, which could offer stability during volatile periods. Compared to a balanced benchmark, the portfolio leans heavily towards equities, which might not suit all risk profiles. To achieve a more diversified asset allocation, consider introducing assets that can provide a hedge against equity market downturns, such as fixed income or alternative investments.

Sectors Info

  • Technology
    30%
  • Financials
    15%
  • Consumer Discretionary
    11%
  • Health Care
    10%
  • Industrials
    9%
  • Telecommunications
    9%
  • Consumer Staples
    6%
  • Energy
    4%
  • Utilities
    3%
  • Basic Materials
    3%
  • Real Estate
    2%

The portfolio's sector allocation is heavily weighted towards technology at 30%, followed by financial services and consumer cyclicals. This concentration aligns with global benchmarks but may increase vulnerability to sector-specific risks, such as regulatory changes or technological disruptions. A tech-heavy portfolio could experience higher volatility, particularly during interest rate hikes. To mitigate sector-specific risks, consider rebalancing towards sectors with lower representation or adding sectors that historically perform well during different economic cycles, such as utilities or healthcare.

Regions Info

  • North America
    83%
  • Europe Developed
    7%
  • Asien Schwellenländer
    3%
  • Japan
    3%
  • Asien
    2%
  • Australasia
    1%
  • Afrika/Mittlerer Osten
    1%

Geographically, the portfolio is predominantly exposed to North America, accounting for 83% of the allocation. This concentration can lead to over-reliance on the U.S. market, which might not perform as well in all economic environments. While the U.S. has been a strong performer historically, diversifying into underrepresented regions like Europe or emerging markets can enhance resilience against localized economic downturns. A more balanced geographic allocation can reduce risk and capture growth opportunities in different parts of the world.

Market capitalization Info

  • Mega-cap
    47%
  • Large-cap
    35%
  • Mid-cap
    18%

The portfolio's market capitalization is heavily skewed towards mega and big-cap stocks, with 47% and 35% allocations, respectively. This focus on large companies provides stability and established growth, but it may limit exposure to the potentially higher returns of medium and small-cap stocks. Compared to a typical benchmark, this allocation lacks the diversification benefits offered by smaller companies. To improve diversification and capture potential growth, consider including a mix of medium and small-cap stocks, which can offer unique opportunities and reduce concentration risk.

Redundant positions Info

  • Vanguard S&P 500 UCITS ETF
    Vanguard FTSE All-World UCITS
    High correlation

The assets in this portfolio, namely the Vanguard S&P 500 UCITS ETF and the Vanguard FTSE All-World UCITS ETF, are highly correlated. This means they tend to move in similar directions during market fluctuations, which can limit the diversification benefits typically sought in a balanced portfolio. High correlation can increase risk during downturns as both assets may decline simultaneously. To enhance diversification, consider introducing assets or strategies that have historically shown lower correlation with the existing holdings, thereby reducing overall portfolio risk.

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.

Optimization using the Efficient Frontier could potentially enhance this portfolio's risk-return profile. The Efficient Frontier is a concept that helps identify the best possible risk-return ratio by adjusting the allocation among existing assets. However, before optimizing, it's advisable to address the high correlation between the current ETFs, as this overlap may limit diversification benefits. By incorporating less correlated assets, you can improve the portfolio's efficiency, achieving a more favorable balance between risk and return while still aligning with your investment objectives.

Dividends Info

  • Vanguard S&P 500 UCITS ETF 0.60%
  • Vanguard FTSE All-World UCITS 1.00%
  • Weighted yield (per year) 0.80%

The portfolio's overall dividend yield stands at 0.80%, with contributions from both ETFs. While dividends provide a steady income stream, this yield is relatively modest compared to income-focused portfolios. For investors prioritizing income, the current yield may not meet expectations. However, for those focused on growth, reinvesting dividends can contribute to compounding returns over time. To increase dividend income, consider incorporating higher-yielding assets or dividend-focused ETFs that align with your risk tolerance and investment goals.

Ongoing product costs Info

  • Vanguard S&P 500 UCITS ETF 0.07%
  • Vanguard FTSE All-World UCITS 0.22%
  • Weighted costs total (per year) 0.14%

The portfolio's total expense ratio (TER) is 0.14%, which is impressively low and supports better long-term performance by minimizing costs. This low cost is a positive aspect, as it allows more of the portfolio's returns to be retained by the investor. Compared to typical mutual funds, this TER is significantly lower, making it cost-effective for long-term investors. Maintaining low costs is crucial for optimizing returns, so continue to monitor any changes in expense ratios and consider cost-effective alternatives if necessary.

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