Balanced Portfolio with Broad Diversification and Moderate Risk, Focus on Stocks and High Correlation Among ETFs
Report created on Jul 24, 2024Risk profile
4/7
Diversification profile
4/5
Positions
-
XM Xtrackers MSCI AC World ESG Screened UCITS ETF 1C
XMAW - IE00BGHQ0G80 60.00% -
XM Xtrackers MSCI Emerging Markets UCITS ETF 1C
XMME - IE00BTJRMP35 25.00% -
SP SSgA SPDR ETFs Europe I Public Limited Company - SPDR MSCI ACWI UCITS ETF
SPYY - IE00B44Z5B48 15.00%
The portfolio is composed of three ETFs, with a major allocation in the Xtrackers MSCI AC World ESG Screened ETF at 60%, the Xtrackers MSCI Emerging Markets ETF at 25%, and the SPDR MSCI ACWI ETF at 15%. This composition indicates a strong focus on globally diversified equities. The portfolio is broadly diversified, suggesting a strategic approach to risk management. However, the concentration in a limited number of ETFs may limit exposure to potential opportunities in other asset classes. Consider diversifying into other asset classes to enhance the portfolio's resilience against market volatility.
Growth
Historically, the portfolio has shown a compound annual growth rate (CAGR) of 10.57%, which is a strong performance metric. However, it also experienced a maximum drawdown of -32.96%, indicating vulnerability during market downturns. The portfolio's performance is concentrated, with 90% of returns occurring on just 24 days. This suggests that the portfolio's returns are significantly impacted by market timing. To mitigate this, consider strategies that can provide more consistent returns across different market conditions, thereby reducing reliance on a few high-performing days.
Projection
A Monte Carlo simulation, which uses random sampling to predict future outcomes, indicates a positive outlook for the portfolio with an annualized return of 10.67% across 1,000 simulations. The expected end portfolio values range from a 5th percentile of 23.58% to a 67th percentile of 362.52%. This projection suggests a wide range of potential outcomes, highlighting the inherent uncertainty in market investments. To navigate this uncertainty, maintain a balanced approach, regularly review the portfolio, and adjust allocations as needed to align with long-term financial goals.
Asset classes
- Stocks 100%
The portfolio is heavily weighted towards stocks, with 99.95% in equities and a negligible portion in other asset classes. This concentration in a single asset class increases exposure to market volatility and economic cycles. While equities can offer high returns, they also come with higher risk. To balance risk and return, consider incorporating other asset classes such as bonds or real estate, which can provide diversification benefits and reduce overall portfolio volatility. This approach can help achieve a more stable performance over time.
Sectors
- Technology 27%
- Financials 19%
- Consumer Discretionary 11%
- Health Care 9%
- Telecommunications 9%
- Industrials 8%
- Consumer Staples 5%
- Basic Materials 4%
- Energy 3%
- Utilities 2%
- Real Estate 2%
The sector allocation of the portfolio is diversified, with significant investments in technology (26.8%), financial services (18.95%), and consumer cyclicals (11.43%). While this diversification across sectors can mitigate sector-specific risks, the high allocation in technology suggests vulnerability to sector downturns. To enhance sector diversification, consider adjusting allocations to achieve a more balanced exposure across various sectors. This can help reduce the impact of adverse events in any single sector, contributing to a more resilient portfolio.
Regions
- North America 52%
- Asia Emerging 16%
- Europe Developed 10%
- Asia Developed 10%
- Japan 4%
- Africa/Middle East 3%
- Latin America 2%
- Australasia 1%
- Europe Emerging 1%
Geographically, the portfolio is well-diversified with significant exposure to North America (51.88%), Asia Emerging (16.47%), and Europe Developed (10.40%). This distribution provides access to different economic regions, potentially benefiting from varying economic growth rates. However, the high concentration in North America suggests a reliance on the performance of this region. To further diversify, consider increasing exposure to underrepresented regions, which can provide additional growth opportunities and reduce dependence on any single geographic area.
Redundant positions
-
High correlationSSgA SPDR ETFs Europe I Public Limited Company - SPDR MSCI ACWI UCITS ETFXtrackers MSCI AC World ESG Screened UCITS ETF 1C
The portfolio exhibits high correlation among its assets, particularly between the SPDR MSCI ACWI ETF and the Xtrackers MSCI AC World ESG Screened ETF. This correlation indicates that these assets tend to move in the same direction, limiting diversification benefits. To optimize the portfolio, consider reducing overlapping holdings and incorporating assets with lower correlation. This strategy can enhance diversification, reduce portfolio risk, and potentially improve overall returns by minimizing the impact of correlated market movements.
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.
Before optimizing the portfolio, it's crucial to address the high correlation among current holdings, which limits diversification benefits. By removing overlapping assets, the portfolio can achieve greater efficiency and potentially higher returns. On the efficient frontier, moving towards a riskier portfolio can increase expected returns, while a more conservative approach can reduce risk. However, it's essential to align any adjustments with personal risk tolerance and financial goals. Balancing risk and reward is key to optimizing the portfolio's performance and achieving long-term success.
Ongoing product costs
- SSgA SPDR ETFs Europe I Public Limited Company - SPDR MSCI ACWI UCITS ETF 0.45%
- Xtrackers MSCI AC World ESG Screened UCITS ETF 1C 0.37%
- Xtrackers MSCI Emerging Markets UCITS ETF 1C 0.18%
- Weighted costs total (per year) 0.33%
The portfolio's total expense ratio (TER) is 0.33%, which is relatively low, reflecting cost-efficient investment choices. Keeping costs low is crucial for maximizing net returns over time. However, it's important to regularly review expense ratios and ensure they remain competitive. Consider evaluating any changes in fund management fees and explore opportunities to further reduce costs without compromising on investment quality. By maintaining a focus on minimizing expenses, the portfolio can enhance its overall performance and achieve better long-term outcomes.
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