A balanced portfolio with high sector concentration and overlapping fund holdings

Report created on Jan 12, 2025

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 predominantly of mutual funds, with the largest allocation to the Wells Fargo Diversified Capital Builder Fund Class C. This fund-heavy structure might lack the direct exposure to individual stocks or bonds that some balanced portfolios include. Typically, balanced portfolios aim for a mix of equities and fixed income to reduce risk. This portfolio's composition is heavily skewed towards funds, which could lead to overlapping holdings. Consider diversifying into other asset types like ETFs or individual securities to reduce redundancy.

Growth Info

Historically, the portfolio has achieved a Compound Annual Growth Rate (CAGR) of 5.34%, with a maximum drawdown of -33.24%. This suggests moderate growth but significant volatility during downturns. Comparing this to a balanced benchmark, which might aim for a 6-8% CAGR, the returns are slightly below average. The historical performance indicates potential for growth, but also highlights the need for better risk management. Consider reviewing asset allocation to enhance stability and potentially increase returns over time.

Projection Info

A Monte Carlo simulation, which uses historical data to predict future outcomes, estimates a 4.79% annualized return. While simulations provide insights, they aren't guarantees due to market unpredictability. The simulation shows a wide range of potential outcomes, highlighting both risks and opportunities. The 50th percentile projects a 43.62% return, but the 5th percentile warns of a possible -57.28% loss. This underscores the importance of preparing for volatility. Re-evaluating the portfolio’s risk level and diversification could help mitigate potential downturns.

Asset classes Info

  • Stocks
    90%
  • Bonds
    9%

The portfolio is heavily weighted towards stocks, making up over 90% of the allocation, with bonds at nearly 9%. This stock-heavy approach aligns with a growth-focused strategy but may not suit conservative investors seeking stability. A balanced benchmark might have a more even mix of stocks and bonds. Consider increasing bond exposure to reduce volatility and provide more consistent returns. Diversifying into other asset classes like real estate or commodities could also enhance stability and potential growth.

Sectors Info

  • Technology
    32%
  • Industrials
    18%
  • Financials
    13%
  • Health Care
    8%
  • Consumer Discretionary
    7%
  • Energy
    7%
  • Telecommunications
    6%
  • Basic Materials
    4%
  • Consumer Staples
    2%
  • Real Estate
    2%
  • Utilities
    1%

Technology dominates the sector allocation at nearly 32%, followed by Industrials and Financial Services. This concentration in tech could lead to higher volatility, especially during market corrections or interest rate hikes. A more evenly distributed sector allocation might better withstand market shifts. While tech offers growth potential, consider balancing it with defensive sectors like utilities or consumer staples. This can help stabilize returns and reduce the impact of sector-specific downturns.

Regions Info

  • North America
    74%
  • Europe Developed
    15%
  • Asia Emerging
    4%
  • Japan
    4%
  • Asia Developed
    2%
  • Latin America
    1%

With over 74% exposure to North America, the portfolio is heavily concentrated in this region. While this aligns with the client's USA base, it limits international diversification. A balanced benchmark might have more exposure to emerging markets or other developed regions. Increasing allocations to Europe, Asia, or Latin America could enhance diversification and capture growth opportunities abroad. This geographic diversification can help mitigate risks associated with regional economic downturns.

Redundant positions Info

  • WELLS FARGO LARGE CAP CORE FUND CLASS A
    WELLS FARGO LARGE CAP CORE FUND CLASS C
    High correlation
  • WELLS FARGO DIVERSIFIED CAPITAL BUILDER FUND CLASS A
    WELLS FARGO DIVERSIFIED CAPITAL BUILDER FUND CLASS C
    High correlation
  • WealthBuilder Equity Fund A
    WealthBuilder Equity Fund C
    High correlation

The portfolio contains several highly correlated funds, such as the Wells Fargo Large Cap Core Fund Classes A and C. High correlation means these funds tend to move in the same direction, reducing diversification benefits. In market downturns, this could lead to larger losses. Consider replacing some of these correlated funds with alternatives that have lower correlation to the rest of the portfolio. This can improve the overall risk-return profile and provide better protection against market volatility.

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 current portfolio could be optimized for a better risk-return balance by addressing overlapping assets. The Efficient Frontier suggests that a more efficient portfolio could achieve a 9.36% expected return at a similar risk level. This optimization focuses on reallocating within existing assets, not necessarily adding new ones. Adjusting the portfolio to align with the Efficient Frontier can enhance returns without increasing risk. However, remember that this is based on historical data and assumptions, not guarantees.

Dividends Info

  • WELLS FARGO DIVERSIFIED CAPITAL BUILDER FUND CLASS A 0.30%
  • WELLS FARGO LARGE COMPANY VALUE FUND CLASS A 1.00%
  • Weighted yield (per year) 0.05%

The portfolio's dividend yield is relatively low at 0.05%, with only a couple of funds contributing significantly. For investors seeking income, this might not be ideal. Dividends can provide steady income and cushion against market volatility. Consider incorporating higher-yielding assets or dividend-focused funds to increase income potential. This adjustment can enhance total returns and offer a degree of stability during market fluctuations.

Ongoing product costs Info

  • WELLS FARGO LARGE CAP CORE FUND CLASS A 1.07%
  • WELLS FARGO LARGE CAP CORE FUND CLASS C 1.82%
  • WELLS FARGO DIVERSIFIED CAPITAL BUILDER FUND CLASS A 1.10%
  • WELLS FARGO DIVERSIFIED CAPITAL BUILDER FUND CLASS C 1.85%
  • FIDELITY ADVISOR INTERNATIONAL CAPITAL APPRECIATION FUND CLASS C 1.87%
  • WealthBuilder Equity Fund C 1.75%
  • WealthBuilder Equity Fund A 1.00%
  • WELLS FARGO LARGE COMPANY VALUE FUND CLASS A 0.82%
  • Weighted costs total (per year) 1.70%

The portfolio's Total Expense Ratio (TER) is 1.7%, which is on the higher side compared to low-cost index funds or ETFs. High costs can erode returns over time, especially in a moderate growth environment. Reducing expenses is a straightforward way to improve net returns. Consider evaluating whether lower-cost alternatives, like index funds or ETFs, could replace some of the current holdings. This could enhance long-term performance by reducing the drag from fees.

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