Balanced Portfolio with High North American Exposure and Strong Correlation Between Two Major ETFs
Report created on Dec 2, 2024Risk profile
4/7
Diversification profile
3/5
Positions
-
CW Amundi Index Solutions - Amundi MSCI World UCITS ETF C EUR
CW8 - LU1681043599 70.00% -
ES EasyETF - BNP Paribas Easy S&P 500 UCITS ETF
ESE - FR0011550185 30.00%
The portfolio consists of two major ETFs, with Amundi MSCI World ETF making up 70% and BNP Paribas S&P 500 ETF contributing 30%. This composition indicates a strong focus on global equities, particularly in developed markets. Having only two ETFs means limited diversification, but it simplifies management and tracking. However, the heavy weighting towards these two funds could expose the portfolio to higher risk if these markets face downturns. Diversifying into additional asset classes or funds might help spread risk and enhance potential returns.
Growth
Historically, the portfolio has shown a commendable performance, with a CAGR of 13.45% and a max drawdown of -33.62%. This suggests strong growth potential, but also significant downside risk during market downturns. The returns are concentrated over a few days, indicating volatility. Understanding that past performance doesn't guarantee future results is crucial. It might be beneficial to consider strategies that could help mitigate drawdowns, such as incorporating more defensive assets or diversifying across different regions and sectors.
Projection
Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance was projected under various market conditions. The results show a wide range of potential outcomes, with a 5th percentile return of 130.01% and a median return of 500.57%. This indicates a generally positive outlook, with most simulations predicting gains. However, the variability suggests potential for both significant growth and loss. It's important to maintain a balanced approach, considering both potential returns and risks, and to periodically reassess the portfolio's alignment with long-term goals.
Asset classes
- Stocks 100%
The portfolio is heavily skewed towards equities, with 99.96% allocated in stocks. This concentration on a single asset class offers the potential for high returns but also increases exposure to market volatility. A more diversified asset allocation, including bonds or alternative investments, could provide a buffer against market swings and reduce overall portfolio risk. Balancing the portfolio with a mix of asset classes can help achieve more stable returns over time and align with a balanced risk profile.
Sectors
- Technology 28%
- Financials 15%
- Health Care 11%
- Consumer Discretionary 10%
- Industrials 9%
- Telecommunications 8%
- Consumer Staples 6%
- Energy 4%
- Basic Materials 3%
- Utilities 3%
- Real Estate 2%
The sector allocation is predominantly in Technology, Financial Services, and Healthcare, accounting for over 54% of the portfolio. This concentration reflects a bet on these sectors' continued growth but also exposes the portfolio to sector-specific risks. Diversifying into underrepresented sectors like Utilities or Real Estate could provide more stability and reduce sector-specific volatility. It's important to regularly review sector allocations to ensure they align with changing market conditions and personal investment objectives.
Regions
- North America 83%
- Europe Developed 11%
- Japan 4%
- Australasia 1%
- Asia Developed 1%
Geographically, the portfolio is concentrated in North America, with 82.59% exposure, followed by Europe Developed. This focus on North American markets may drive strong returns when these economies perform well but also subjects the portfolio to regional risks. Expanding geographical diversification could mitigate these risks and tap into growth potential in emerging markets. A balanced geographic allocation can provide exposure to different economic cycles and reduce the impact of regional downturns on overall performance.
Redundant positions
-
High correlationAmundi Index Solutions - Amundi MSCI World UCITS ETF C EUREasyETF - BNP Paribas Easy S&P 500 UCITS ETF
The portfolio's assets are highly correlated, as both ETFs track similar markets. This correlation means they tend to move in the same direction, providing little diversification benefit. While this can amplify gains when markets rise, it also increases risk during downturns. Consider adding assets with lower correlation to the existing holdings to enhance diversification. This could help smooth out returns and reduce overall portfolio volatility, aligning better with a balanced risk profile.
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 optimization suggests addressing the high correlation between the two ETFs. Reducing overlap can enhance diversification and risk management. Moving along the efficient frontier can help achieve a more optimal risk-return balance. To make the portfolio riskier, increase exposure to higher volatility assets. Conversely, for a more conservative stance, incorporate assets with lower volatility or fixed income securities. Prioritize diversification to improve the portfolio's efficiency and align it with personal risk preferences.
Ongoing product costs
- Amundi Index Solutions - Amundi MSCI World UCITS ETF C EUR 0.38%
- EasyETF - BNP Paribas Easy S&P 500 UCITS ETF 0.12%
- Weighted costs total (per year) 0.30%
The portfolio's total expense ratio (TER) is relatively low at 0.3%, indicating cost-efficient management. Lower costs can significantly enhance net returns over time, especially in a long-term investment strategy. It's important to monitor these costs and ensure they remain competitive. While the current TER is attractive, always be on the lookout for opportunities to further reduce costs without sacrificing quality. Cost efficiency should remain a key consideration in any portfolio adjustment.
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