Balanced Growth Portfolio with Broad Diversification and High Correlation Between Assets
Report created on Nov 14, 2024Risk profile
5/7
Diversification profile
4/5
Positions
-
IW iShares MSCI World Value Factor UCITS
IWVL - IE00BP3QZB59 50.00% -
VW Vanguard FTSE All-World UCITS ETF USD Accumulation
VWRA - IE00BK5BQT80 50.00%
The portfolio is composed of two ETFs, each constituting 50% of the total investment. This structure offers a balanced exposure to global markets, with both ETFs providing a broad diversification across sectors and regions. While the portfolio is evenly split, it lacks diversification in terms of asset classes, as it is heavily weighted towards equities. This might be suitable for investors seeking growth, but it also implies a higher risk profile. To enhance diversification, consider incorporating other asset classes like bonds or real estate, which could help mitigate risk.
Growth
Historically, the portfolio has performed well, with a compound annual growth rate (CAGR) of 10.36%. This indicates a strong growth trajectory, although it has experienced a maximum drawdown of -34.95%, reflecting its volatility. The portfolio's returns are concentrated in just 12 days, which suggests that missing out on these key days could significantly impact overall performance. To manage potential volatility, consider strategies that can protect against downside risks, such as stop-loss orders or diversifying into less correlated assets.
Projection
Using a Monte Carlo simulation, which models potential future performance based on historical data, the portfolio's projected outcomes show a wide range of possibilities. With a hypothetical initial investment, the median expected return is 237.97%, while the 5th percentile is 17.94%, and the 67th percentile is 363.82%. The annualized return of all simulations stands at 10.87%, indicating potential for continued growth. However, the wide range of outcomes underlines the importance of preparing for various market scenarios, possibly by diversifying further or adjusting risk exposure.
Asset classes
- Stocks 99%
- Cash 1%
The portfolio is heavily concentrated in stocks, accounting for over 99% of its composition, with minimal exposure to cash and negligible amounts in other asset classes. This concentration in equities aligns with a growth-oriented investment strategy but also increases exposure to market volatility. To manage risk, consider diversifying into other asset classes such as bonds or alternative investments, which can provide stability and reduce overall portfolio volatility, especially during market downturns.
Sectors
- Technology 25%
- Financials 16%
- Health Care 12%
- Industrials 11%
- Consumer Discretionary 10%
- Telecommunications 8%
- Consumer Staples 6%
- Energy 4%
- Basic Materials 4%
- Utilities 3%
- Real Estate 2%
The sector allocation is fairly diversified, with significant investments in technology, financial services, and healthcare. This broad sector exposure allows the portfolio to capitalize on growth opportunities across various industries. However, the heavy weighting towards technology, at nearly 25%, could expose the portfolio to sector-specific risks. To mitigate this, consider balancing the sector allocation by reducing reliance on a single sector and increasing exposure to underrepresented areas, which can help enhance stability and performance.
Regions
- North America 54%
- Europe Developed 24%
- Japan 14%
- Asia Emerging 3%
- Asia Developed 3%
- Australasia 1%
- Africa/Middle East 1%
Geographically, the portfolio is well-diversified, with significant exposure to North America, Europe, and Japan. This global reach provides access to a wide range of economic environments and growth opportunities. However, the heavy concentration in North America might lead to overexposure to regional risks. To achieve a more balanced geographic allocation, consider increasing investments in emerging markets or other underrepresented regions, which could offer higher growth potential and reduce reliance on any single economic area.
Redundant positions
-
High correlationiShares MSCI World Value Factor UCITSVanguard FTSE All-World UCITS ETF USD Accumulation
The portfolio's assets are highly correlated, as both ETFs tend to move in the same direction. This high correlation limits the diversification benefits typically sought in a balanced portfolio. To enhance diversification, consider introducing assets with low or negative correlations, which can provide a counterbalance during market fluctuations and reduce overall portfolio risk. By diversifying into less correlated investments, the portfolio can achieve a more stable return profile and potentially improve risk-adjusted returns.
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, as it currently has high correlation between assets, limiting diversification benefits. By focusing on the efficient frontier, which represents the set of optimal portfolios offering the highest expected return for a given level of risk, the portfolio can be restructured to enhance performance. The current portfolio's expected return is lower than that of the optimal portfolio. To achieve this, consider reducing overlapping assets and introducing investments with lower correlations, which can improve the risk-return profile.
Ongoing product costs
- iShares MSCI World Value Factor UCITS 0.30%
- Vanguard FTSE All-World UCITS ETF USD Accumulation 0.22%
- Weighted costs total (per year) 0.26%
The portfolio's total expense ratio (TER) is 0.26%, which is relatively low and reflects cost-efficient management. Low expenses are crucial for maximizing net returns, especially over the long term. This competitive TER allows more of the portfolio's returns to be retained by the investor. To maintain cost efficiency, regularly review the expense ratios of the holdings and consider rebalancing if more cost-effective options become available. Keeping investment costs low is a fundamental principle for enhancing overall portfolio performance.
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