Heavily US-focused growth portfolio with high correlation and sector concentration

Report created on Jan 28, 2025

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

1/5
Single-Focused
Less diversification More diversification

Positions

The portfolio is predominantly composed of US-based funds and ETFs, with a strong concentration in large-cap stocks. The Fidelity 500 Index Fund and Vanguard S&P 500 ETF alone make up over half of the portfolio. This composition shows a significant bias towards large-cap equities, which might be standard for growth-focused portfolios but limits exposure to other asset classes like bonds or international equities. While such a structure can benefit from the stability and growth potential of large companies, it may lack diversification. Consider diversifying into other asset classes and regions to spread risk and potentially enhance returns.

Growth Info

Historically, the portfolio has delivered an impressive CAGR of 12.33%, showcasing strong growth potential. However, it also experienced a significant maximum drawdown of -31.89%, indicating vulnerability during market downturns. The concentration in large-cap US equities likely contributed to this volatility. While past performance is encouraging, it is crucial to remember that it does not guarantee future results. To mitigate risks associated with such drawdowns, consider incorporating more defensive assets or strategies that can provide stability during market declines.

Projection Info

The Monte Carlo simulation, which uses historical data to forecast future outcomes, suggests a wide range of potential returns. With a median outcome of 449.1% and an annualized return of 16.22%, the projections are optimistic. However, the 5th percentile outcome of -3.3% highlights possible negative scenarios. While simulations provide valuable insights, they are not foolproof and rely heavily on historical data, which may not reflect future market conditions. To improve robustness, regularly update simulations and consider stress-testing the portfolio against various economic scenarios.

Asset classes Info

  • Stocks
    94%
  • Bonds
    5%
  • Other
    1%

The portfolio's asset allocation is heavily skewed towards stocks, comprising 94% of the holdings. This bias aligns with a growth-oriented strategy but limits diversification benefits. Bonds and other asset classes make up only a small fraction, potentially increasing overall portfolio risk. While equities offer higher growth potential, they also come with increased volatility. To achieve a more balanced risk-return profile, consider increasing exposure to bonds or alternative assets, which can provide income and reduce volatility, particularly in uncertain market environments.

Sectors Info

  • Technology
    31%
  • Financials
    15%
  • Telecommunications
    12%
  • Health Care
    11%
  • Industrials
    8%
  • Consumer Discretionary
    8%
  • Consumer Staples
    4%
  • Consumer Discretionary
    3%
  • Energy
    3%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    2%

The portfolio exhibits a significant concentration in the technology sector, accounting for 31% of the holdings. While tech stocks have driven substantial growth in recent years, they can also introduce volatility, especially during periods of rising interest rates. The financial services and communication services sectors are also well-represented, but other sectors, like utilities and real estate, are underweighted. To mitigate sector-specific risks, consider diversifying across a broader range of sectors, which can help stabilize returns and reduce dependency on the performance of a single industry.

Regions Info

  • North America
    98%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly concentrated in North America, with 98% exposure. This heavy focus on the US market may limit benefits from global diversification, such as reduced risk and access to growth opportunities in emerging markets. While the US has been a strong performer historically, global diversification can help mitigate risks associated with regional economic downturns. Consider increasing exposure to international markets, particularly in Europe and Asia, to enhance diversification and capture growth potential beyond the US.

Market capitalization Info

  • Mega-cap
    48%
  • Large-cap
    29%
  • Mid-cap
    15%
  • Small-cap
    1%

The portfolio is predominantly invested in mega and large-cap stocks, making up 77% of the allocation. This focus offers stability and growth potential but may miss out on the dynamic growth opportunities often found in small and mid-cap companies. While large-cap stocks provide a solid foundation, diversifying into smaller market capitalizations can enhance growth potential and improve the risk-return profile. Consider gradually increasing exposure to mid and small-cap stocks to capture a wider range of market opportunities.

Redundant positions Info

  • Fidelity 500 Index Fund
    Vanguard Total Stock Market Index Fund ETF Shares
    FIDELITY ZERO LARGE CAP INDEX FUND
    Vanguard S&P 500 ETF
    High correlation
  • FIDELITY PURITAN FUND FIDELITY PURITAN FUND
    FIDELITY PURITAN FUND CLASS K
    High correlation

The portfolio shows high correlation among its assets, particularly between the Fidelity 500 Index Fund, Vanguard S&P 500 ETF, and similar funds. This correlation implies that the assets tend to move in the same direction, limiting diversification benefits. High correlation can be a concern during market downturns, as it may amplify losses. To enhance diversification, consider reducing exposure to highly correlated assets and introducing less correlated investments, which can help manage risk and improve overall portfolio resilience.

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.

While the portfolio is structured for growth, optimizing for risk-return efficiency using the Efficient Frontier could enhance performance. This involves adjusting the allocation among current assets to achieve the best possible risk-return ratio. However, before optimization, consider addressing the high correlation among assets, which limits diversification benefits. Once the portfolio is better diversified, use optimization techniques to refine the balance between risk and return, ensuring alignment with investment goals and risk tolerance.

Dividends Info

  • Fidelity Contrafund 0.10%
  • FIDELITY PURITAN FUND CLASS K 1.30%
  • FIDELITY PURITAN FUND FIDELITY PURITAN FUND 1.70%
  • Fidelity 500 Index Fund 1.20%
  • Marvell Technology Group Ltd 0.20%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.20%
  • Weighted yield (per year) 1.00%

The portfolio's overall dividend yield is relatively low at 1.00%, reflecting its growth-oriented nature. While dividends can provide a steady income stream, the focus here is clearly on capital appreciation. Investors seeking income might find this yield insufficient. However, for those primarily focused on growth, the current yield is aligned with the strategy. If income becomes a priority, consider reallocating some assets to higher-yielding investments, which can offer a balance between growth and income.

Ongoing product costs Info

  • Fidelity Contrafund 0.39%
  • FIDELITY PURITAN FUND CLASS K 0.40%
  • FIDELITY PURITAN FUND FIDELITY PURITAN FUND 0.48%
  • Fidelity 500 Index Fund 0.02%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.16%

The portfolio's total expense ratio (TER) is impressively low at 0.16%, indicating cost-efficiency. Low costs are beneficial for long-term performance, as they allow more of the portfolio's returns to be retained. This aligns well with the growth objective, as minimizing expenses can significantly enhance compounding over time. Maintaining this cost structure is advantageous, but always remain vigilant for any changes in fund fees or opportunities to further reduce costs, which can contribute to better long-term returns.

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