A balanced Canadian portfolio with strong US equity exposure and moderate diversification
Report created on Jan 12, 2025Risk profile
4/7
Diversification profile
3/5
Positions
-
XE iShares Core Equity Portfolio
XEQT - CA46436D1087 45.00% -
VF Vanguard S&P 500 Index ETF
VFV - CA92205Y1051 40.00% -
QQ Invesco NASDAQ 100 Index ETF CAD Units
QQC - CA46090T2092 15.00%
The portfolio is composed of three ETFs with a strong leaning towards equities, particularly in the US market. The iShares Core Equity Portfolio and Vanguard S&P 500 Index ETF make up 85% of the portfolio, with the Invesco NASDAQ 100 Index ETF adding a tech-focused component. Compared to common benchmarks, this allocation leans heavily on US equities, which could lead to significant exposure to market fluctuations. Diversifying further into other asset classes like bonds may help balance potential risks associated with equity volatility.
Growth
Historically, the portfolio has shown impressive performance with a Compound Annual Growth Rate (CAGR) of 14.1%, which surpasses many standard benchmarks. However, it experienced a maximum drawdown of -22.65%, indicating potential vulnerability during market downturns. While past performance is a helpful indicator, it doesn't guarantee future results. To mitigate drawdowns, consider incorporating assets that historically perform well in bear markets, such as bonds or defensive stocks.
Projection
Forward projections using Monte Carlo simulations suggest a favorable outlook, with a 50th percentile outcome of 662.11% growth. This analysis uses historical data to simulate potential future outcomes, providing a probabilistic range of returns. While promising, these projections are not guarantees. Consider regularly reviewing the portfolio to ensure it aligns with evolving financial goals and market conditions, as projections rely on historical trends that may change.
Asset classes
- US Equity 76%
- Stocks 11%
The portfolio is heavily weighted towards US equities at nearly 76%, with a small allocation to cash and other assets. This concentration in equities suggests a growth-oriented strategy but may lack diversification benefits seen in a more balanced mix of assets. Introducing fixed-income securities or alternative investments could enhance diversification, potentially smoothing returns and reducing volatility over time.
Sectors
- Technology 30%
- Financials 15%
- Consumer Discretionary 11%
- Telecommunications 9%
- Industrials 9%
- Health Care 9%
- Consumer Staples 6%
- Energy 4%
- Basic Materials 3%
- Utilities 3%
- Real Estate 2%
Sector allocation shows a significant focus on technology, comprising over 30% of the portfolio, followed by financial services and consumer cyclicals. This tech-heavy allocation can lead to higher volatility, especially during periods of rising interest rates. Balancing this with more stable sectors like healthcare or utilities could provide steadier performance across different economic cycles, aligning closer with a balanced risk profile.
Regions
- North America 87%
- Europe Developed 7%
- Japan 3%
- Asia Emerging 1%
- Asia Developed 1%
- Australasia 1%
Geographically, the portfolio is predominantly exposed to North America, particularly the US, with minimal exposure to other regions. This concentration could limit benefits from global diversification and expose the portfolio to North American market risks. Consider increasing exposure to other developed and emerging markets to capture growth opportunities and mitigate regional economic risks, aligning with a more globally diversified strategy.
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 benefit from optimization using the Efficient Frontier, which balances risk and return. This involves adjusting the allocation to achieve the best possible risk-return ratio, enhancing efficiency without necessarily increasing diversification. By reallocating within existing assets, it’s possible to improve returns for a given risk level, ensuring the portfolio is working harder for you.
Dividends
- Invesco NASDAQ 100 Index ETF CAD Units 0.20%
- Vanguard S&P 500 Index ETF 0.50%
- iShares Core Equity Portfolio 0.90%
- Weighted yield (per year) 0.64%
The portfolio's dividend yield is relatively low at 0.64%, reflecting its focus on growth-oriented ETFs. While dividends can provide a steady income stream, the current yield may not significantly contribute to total returns. For investors seeking income, consider adding higher-yielding assets, such as dividend-focused ETFs or stocks, to enhance cash flow without compromising growth potential.
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