Balanced portfolio with focus on North American equities and moderate sector diversification
Report created on Dec 30, 2024Risk profile
4/7
Diversification profile
3/5
Positions
-
VF Vanguard S&P 500 Index ETF
VFV - CA92205Y1051 40.00% -
XE iShares Core Equity Portfolio
XEQT - CA46436D1087 30.00% -
VD Vanguard FTSE Canadian High Dividend Yield
VDY - CA92203Q1046 20.00% -
TE TD Global Technology Leaders Index ETF
TEC - CA87241G1000 10.00%
The portfolio consists of four ETFs, with a significant allocation to the Vanguard S&P 500 Index ETF at 40%, followed by the iShares Core Equity Portfolio at 30%. The Vanguard FTSE Canadian High Dividend Yield ETF accounts for 20%, and the TD Global Technology Leaders Index ETF makes up the remaining 10%. This composition leans heavily towards North American equities, reflecting a common strategy for balanced portfolios. Such allocations can provide stability and growth potential, but it may be worth considering more diversification to mitigate regional risks.
Growth
Historically, the portfolio has delivered an impressive CAGR of 16.74%, though it has experienced a maximum drawdown of -29.81%. This indicates that while the returns have been strong, there is potential for significant volatility. Comparing this performance to common benchmarks, the returns are favorable, but the drawdown suggests a need for caution. It's important to remember that past performance doesn't guarantee future results, and maintaining a balanced approach is key to managing risk.
Projection
Using Monte Carlo simulations, the portfolio shows a wide range of potential outcomes. With 1,000 simulations, the 5th percentile projects a 178.99% return, while the median (50th percentile) projects 860.48%. This method uses historical data to simulate future performance, but it's crucial to understand that these are not predictions. While the simulations show a high probability of positive returns, it's important to remain aware of the inherent uncertainties in market conditions.
Asset classes
- US Equity 63%
- Stocks 27%
The portfolio is heavily weighted towards equities, with 63% in US equity and 27% in other equities. This allocation aligns with a growth-focused strategy, offering potential for high returns. However, the limited exposure to other asset classes like bonds or cash may increase volatility. To enhance diversification and manage risk, consider incorporating a broader mix of asset classes, which can provide stability during market fluctuations and align with a balanced risk profile.
Sectors
- Technology 26%
- Financials 23%
- Energy 9%
- Consumer Discretionary 9%
- Telecommunications 8%
- Industrials 7%
- Health Care 7%
- Consumer Staples 4%
- Utilities 3%
- Basic Materials 3%
- Real Estate 2%
The portfolio's sector allocation is concentrated in technology (26%) and financial services (23%), with smaller allocations across other sectors like energy and consumer cyclicals. This concentration can lead to higher volatility, especially if these sectors face downturns. While sectoral trends can drive returns, balancing exposure across a wider range of industries could reduce risk. Consider diversifying into underrepresented sectors to achieve a more balanced sectoral composition.
Regions
- North America 90%
- Europe Developed 5%
- Japan 2%
- Asia Emerging 1%
- Asia Developed 1%
- Australasia 1%
With 90% of the portfolio's assets allocated to North America, there's a significant regional concentration. This focus can expose the portfolio to regional economic risks, though it aligns with the client's Canadian base. Diversifying geographically can help mitigate such risks and tap into growth opportunities in other regions. Consider gradually increasing exposure to international markets to enhance diversification 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 potentially benefit from optimization using the Efficient Frontier, which aims to maximize returns for a given level of risk. By adjusting the current asset allocations, the portfolio can achieve a more optimal risk-return balance. This doesn't necessarily mean adding new assets but rather rebalancing existing ones to improve efficiency. Regularly reviewing and adjusting the portfolio can help maintain alignment with investment goals and risk tolerance.
Dividends
- Vanguard FTSE Canadian High Dividend Yield 2.20%
- Vanguard S&P 500 Index ETF 0.50%
- iShares Core Equity Portfolio 0.90%
- Weighted yield (per year) 0.91%
The portfolio's overall dividend yield is modest at 0.91%, with the Vanguard FTSE Canadian High Dividend Yield ETF contributing the most at 2.2%. Dividends can provide a steady income stream and enhance total returns, especially in low-growth environments. For investors seeking higher income, consider increasing exposure to dividend-focused assets. However, it's important to balance this with the need for growth and capital appreciation.
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