Growth-Oriented Portfolio with High Risk and Moderate Diversification Needs Optimization for Better Returns

Report created on Jul 13, 2024

Risk profile Info

5/7
Growth
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Diversification profile Info

3/5
Moderately Diversified
← Less diversification More diversification →

Positions

The portfolio is composed of a mix of common stocks and ETFs, with a strong focus on growth. The largest position is Alibaba Group Holding Ltd at 20%, followed by a variety of ETFs and individual stocks like Chipotle Mexican Grill Inc and Gilead Sciences Inc. The allocation reflects a growth-oriented strategy, aiming for capital appreciation. This composition suggests a moderate level of diversification, which is beneficial for managing risk. To enhance diversification, consider spreading investments across different asset classes and regions to mitigate potential volatility.

Growth Info

The historical performance of this portfolio shows a solid compound annual growth rate (CAGR) of 14.85%, indicating strong past returns. However, it also experienced a significant maximum drawdown of -43.61%, highlighting its vulnerability to market downturns. This performance suggests that while the portfolio has the potential for high returns, it also carries substantial risk. To improve resilience, consider incorporating more stable investments that can provide a buffer during market declines, potentially reducing the impact of drawdowns.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was projected. This method helps estimate potential outcomes by simulating random market conditions. The median scenario shows a growth of 308.98%, while the 67th percentile indicates a return of 662.09%. However, there's a 5th percentile downside of -59.9%. These projections demonstrate the portfolio's high-risk, high-reward nature. To better align with risk tolerance, consider adjusting the asset allocation to reduce downside risk while maintaining growth potential.

Asset classes Info

  • Stocks
    100%

The portfolio is heavily weighted towards stocks, comprising 99.91% of the allocation, with minimal cash and other asset classes. This concentration in equities aligns with a growth-focused strategy but increases exposure to market volatility. Diversifying into other asset classes like bonds or real estate could provide stability and reduce overall risk. A more balanced approach might help cushion against market fluctuations and offer a smoother return profile over time.

Sectors Info

  • Consumer Discretionary
    40%
  • Technology
    17%
  • Health Care
    14%
  • Telecommunications
    10%
  • Financials
    8%
  • Industrials
    4%
  • Energy
    3%
  • Consumer Staples
    1%
  • Basic Materials
    1%
  • Real Estate
    1%

Sector allocation is skewed towards consumer cyclicals at 40.37%, followed by technology and healthcare. This concentration can lead to increased sector-specific risk, especially in economic downturns. While these sectors offer growth opportunities, their cyclical nature can result in significant volatility. To mitigate this risk, consider diversifying across more sectors, including defensive ones like utilities or consumer staples, which tend to perform better in uncertain economic conditions.

Regions Info

  • North America
    74%
  • Asia Emerging
    23%
  • Europe Developed
    1%
  • Australasia
    1%

Geographically, the portfolio is primarily focused on North America, with some exposure to emerging Asia. This allocation reflects a home bias, which can limit the benefits of global diversification. While North American markets have performed well, expanding into other regions could provide access to growth opportunities and reduce regional risk. Consider increasing exposure to developed markets like Europe or emerging markets outside Asia to achieve a more balanced geographic distribution.

Redundant positions Info

  • O'Shares Global Internet Giants
    First Trust Dow Jones Internet Index Fund
    High correlation

The portfolio includes highly correlated assets like O'Shares Global Internet Giants and the First Trust Dow Jones Internet Index Fund. Such correlations can diminish diversification benefits, as these assets may move in tandem under similar market conditions. To enhance diversification, consider reducing exposure to overlapping positions and seek investments with low correlations to existing holdings. This approach can help spread risk more effectively across the portfolio.

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 diving into portfolio optimization, addressing overlapping assets should be a priority to enhance diversification. Afterward, consider moving along the efficient frontier to achieve a more optimal risk-return balance. A riskier portfolio can be achieved by increasing the allocation to high-growth assets, while a more conservative approach involves adding bonds or other low-volatility investments. This strategic adjustment can help align the portfolio with specific financial goals and risk preferences.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Alibaba Group Holding Ltd 2.00%
  • First Trust Dow Jones International Internet ETF 0.20%
  • Gilead Sciences Inc 3.40%
  • Vanguard Total Stock Market Index Fund ETF Shares 1.30%
  • Weighted yield (per year) 1.17%

The portfolio has a modest total dividend yield of 1.17%, with Gilead Sciences Inc contributing the highest yield at 3.4%. While dividends provide a stable income stream, the current yield is relatively low for income-focused investors. To increase income potential, consider adding higher-yielding assets or dividend-focused funds. This strategy can complement the growth objective while providing regular cash flow, which can be reinvested or used to meet financial goals.

Ongoing product costs Info

  • ARK Innovation ETF 0.75%
  • Avantis® U.S. Small Cap Value ETF 0.25%
  • First Trust Dow Jones Internet Index Fund 0.52%
  • First Trust Dow Jones International Internet ETF 0.65%
  • O'Shares Global Internet Giants 0.48%
  • Vanguard Total Stock Market Index Fund ETF Shares 0.03%
  • Weighted costs total (per year) 0.22%

Portfolio costs are primarily driven by the ARK Innovation ETF with an expense ratio of 0.75%, contributing to a total TER of 0.22%. While not excessively high, managing costs is crucial for maximizing net returns. Consider reviewing the expense ratios of current holdings and exploring lower-cost alternatives that offer similar exposure. Reducing costs can enhance overall performance, especially in a long-term investment horizon where fees compound over time.

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