A balanced portfolio with a strong focus on North American equities and tech sector concentration

Report created on Jan 29, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio is primarily composed of three ETFs: iShares Core S&P 500, iShares Core MSCI World, and iShares NASDAQ 100. With 60% allocated to the S&P 500 ETF, it heavily leans towards U.S. large-cap stocks. The remaining 40% is split equally between global equities and technology-focused stocks. This composition reflects a preference for established markets and sectors, which can offer stability but may limit exposure to emerging opportunities. While the portfolio aligns with a balanced risk profile, further diversification could enhance resilience against market shifts.

Growth Info

Historically, the portfolio has performed well, achieving a compound annual growth rate (CAGR) of 15.16%. However, it also experienced a maximum drawdown of -32.40%, indicating potential vulnerability during market downturns. The high returns are consistent with its significant exposure to U.S. equities, which have outperformed globally in recent years. While past performance is promising, it's important to remember that it doesn't guarantee future results. It may be beneficial to consider strategies that mitigate drawdown risks, such as diversifying into less correlated assets.

Projection Info

Using Monte Carlo simulations, the portfolio's future performance was modeled with 1,000 simulations. The results show a median projected return of 659%, with a 5th percentile return of 148% and a 67th percentile return of 900.5%. Nearly all simulations resulted in positive returns, reflecting the portfolio's strong historical performance. However, these projections rely on historical data, which may not account for future market conditions. To enhance confidence in these outcomes, consider incorporating scenario analysis to test the portfolio under varying economic conditions.

Asset classes Info

  • Stocks
    100%

The portfolio is solely invested in stocks, which may limit its ability to withstand market volatility. While equities offer growth potential, the absence of bonds or other asset classes reduces diversification. A balanced portfolio typically includes a mix of stocks and bonds to smooth returns over time. Introducing fixed income or alternative investments could provide a buffer against equity market downturns, aligning better with a balanced risk profile. This adjustment could enhance the portfolio's resilience and improve risk-adjusted returns.

Sectors Info

  • Technology
    36%
  • Consumer Discretionary
    12%
  • Financials
    11%
  • Telecommunications
    10%
  • Health Care
    9%
  • Industrials
    7%
  • Consumer Staples
    5%
  • Energy
    3%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    2%

With 36% of the portfolio invested in technology, there is a notable sector concentration. While tech has driven recent market gains, it also brings higher volatility, especially during interest rate hikes. Other sectors like consumer cyclicals and financial services are also represented but to a lesser extent. This allocation may benefit from diversification across more defensive sectors, which could stabilize returns during economic downturns. Balancing sector exposure can help mitigate risks associated with sector-specific downturns.

Regions Info

  • North America
    95%
  • Europe Developed
    4%
  • Japan
    1%

The portfolio is heavily weighted towards North American equities, comprising 95% of the geographic allocation. While this region has been a strong performer, such concentration exposes the portfolio to regional risks. The minimal exposure to Europe and Japan limits diversification benefits. Expanding geographic exposure to include more regions, particularly emerging markets, could enhance diversification and reduce reliance on a single economic area. This broader exposure might provide better protection against regional economic fluctuations.

Market capitalization Info

  • Mega-cap
    48%
  • Large-cap
    35%
  • Mid-cap
    16%

The portfolio's allocation by market capitalization is skewed towards mega and big-cap stocks, which make up 83% of the total. While these companies offer stability and liquidity, the lack of exposure to small-cap stocks may limit growth potential. Small-cap stocks often provide higher returns during economic expansions due to their growth prospects. To capture this potential, consider increasing exposure to smaller companies, which can complement the existing large-cap focus and enhance overall portfolio diversification.

Redundant positions Info

  • iShares Core MSCI World UCITS ETF USD (Acc)
    iShares Core S&P 500 UCITS ETF USD (Acc)
    High correlation

The portfolio's assets are highly correlated, particularly between the iShares Core MSCI World and S&P 500 ETFs. High correlation means these assets tend to move together, reducing diversification benefits. In market downturns, correlated assets may not provide the protection expected from a diversified portfolio. To address this, consider introducing less correlated assets, which can help offset losses during market volatility. This approach can improve the portfolio's risk management and enhance long-term performance stability.

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 be optimized using the Efficient Frontier, which seeks the best possible risk-return ratio given the existing assets. However, the high correlation between current holdings suggests limited diversification. Prior to optimization, focus on reducing overlap among highly correlated assets, which can enhance the portfolio's efficiency. By adjusting allocations to include a broader range of asset classes and less correlated securities, the portfolio can achieve a more favorable risk-return balance.

Ongoing product costs Info

  • iShares Core MSCI World UCITS ETF USD (Acc) 0.20%
  • iShares Core S&P 500 UCITS ETF USD (Acc) 0.12%
  • iShares NASDAQ 100 UCITS ETF USD (Acc) 0.36%
  • Weighted costs total (per year) 0.18%

With a total expense ratio (TER) of 0.18%, the portfolio benefits from low costs, which supports long-term returns. Keeping expenses minimal is crucial as fees compound over time, potentially eroding gains. The selection of low-cost ETFs reflects a cost-conscious strategy, which is commendable. To maintain this advantage, continually monitor expense ratios and consider low-cost alternatives when rebalancing. Staying vigilant on costs can significantly impact the portfolio's overall performance.

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