High-Risk Low-Diversity Portfolio with Strong Tech Bias and Potential for Growth but Limited Geographic Spread

Report created on Jun 15, 2024

Risk profile

  • Secure
    Speculative

The risk profile, derived from past market volatility, reflects the level of risk the portfolio is exposed to. This assessment helps align your investments with your financial goals and comfort with market fluctuations.

Diversification profile

  • Focused
    Diversified

The diversification assessment evaluates the spread of investments across asset classes, regions, and sectors. This ensures a balanced mix, reducing risk and maximizing returns by not concentrating in any single area.

Positions

This portfolio is heavily weighted towards U.S. equities, with a significant concentration in technology. The Vanguard S&P 500 ETF and Invesco NASDAQ 100 ETF together constitute over 70% of the portfolio, indicating a strong focus on large-cap tech and growth stocks. Additionally, the VanEck Semiconductor ETF and Avantis U.S. Small Cap Value ETF add a layer of sector-specific and small-cap exposure, respectively. While the composition suggests potential for high growth, it also indicates vulnerability to sector-specific downturns, particularly in tech. Diversification is low, which could lead to higher volatility in the portfolio's value.

Growth Info

Historically, the portfolio has demonstrated impressive growth, with a compound annual growth rate (CAGR) of 19.16%. However, this performance comes with a notable downside risk, as indicated by a maximum drawdown of -29.12%. This suggests that while the portfolio has the potential for high returns, it is also prone to significant fluctuations in value. The concentration in technology and growth stocks likely contributed to both the high returns and the volatility. Investors should be aware of the potential for large swings in value and consider whether they can tolerate such volatility in pursuit of growth.

Projection Info

Using a Monte Carlo simulation, which generates a range of possible outcomes based on historical data, the portfolio shows a wide distribution of potential future returns. Assuming a hypothetical initial investment, the 50th percentile projects a portfolio value increase of 1,411.65%, with an annualized return of 24.27%. This suggests that the portfolio could continue to deliver strong returns, although the high-risk nature is evident in the variance across simulations. While most simulations predict positive returns, investors should remain cautious of the potential for adverse market conditions affecting outcomes.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with a minuscule allocation to cash. This heavy tilt towards equities aligns with a growth-oriented strategy, aiming for capital appreciation rather than income generation or capital preservation. While this asset class allocation is suitable for investors seeking long-term growth, it lacks the stability that bonds or other fixed-income investments might provide. To balance risk, investors might consider diversifying into other asset classes, although this would require a shift in strategy away from pure growth.

Sectors Info

  • Technology
    45%
  • Consumer Discretionary
    11%
  • Telecommunications
    9%
  • Financials
    9%
  • Industrials
    7%
  • Health Care
    6%
  • Consumer Staples
    5%
  • Energy
    3%
  • Basic Materials
    2%
  • Utilities
    1%
  • Real Estate
    1%

Technology dominates the sector allocation, making up over 45% of the portfolio. This concentration reflects a strong bet on tech's continued growth but also exposes the portfolio to sector-specific risks. Other sectors like consumer cyclicals, communication services, and financial services provide some diversification, yet remain relatively small portions. This sector imbalance could result in increased volatility, especially if the tech sector faces downturns. Broadening sector exposure could reduce risk and improve stability, although it might also moderate potential returns.

Regions Info

  • North America
    96%
  • Asia Developed
    2%
  • Europe Developed
    2%

Geographically, the portfolio is heavily concentrated in North America, with over 95% of assets allocated there. This limited geographic diversification means that the portfolio's performance is closely tied to the U.S. market. While this focus can benefit from the robust U.S. economy, it also leaves the portfolio vulnerable to domestic downturns. Expanding geographic exposure could mitigate this risk and provide access to growth opportunities in other regions. However, such diversification should align with the investor's risk tolerance and goals.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Vanguard S&P 500 ETF
    High correlation

The portfolio exhibits high correlation between the Vanguard S&P 500 ETF and Invesco NASDAQ 100 ETF, suggesting overlapping exposure with limited diversification benefits. This correlation indicates that these assets often move in tandem, amplifying the portfolio's overall risk. Reducing exposure to highly correlated assets could enhance diversification and potentially lower volatility. Investors might consider reallocating funds to less correlated investments, though this requires careful consideration of the impact on expected returns.

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, it's crucial to address the high correlation between assets like the Vanguard S&P 500 ETF and Invesco NASDAQ 100 ETF, which limits diversification. By reducing overlapping positions, the portfolio can achieve better risk-adjusted returns. Moving along the efficient frontier, investors can adjust their allocation to achieve a riskier or more conservative portfolio. A riskier portfolio would involve increasing exposure to volatile sectors, while a more conservative approach could include diversifying into less correlated assets. Prioritizing diversification will enhance the portfolio's resilience.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Invesco NASDAQ 100 ETF 0.60%
  • VanEck Semiconductor ETF 0.40%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 0.92%

The portfolio's dividend yield is relatively low at 0.92%, reflecting its growth-oriented nature. The ETFs within the portfolio, such as the Vanguard S&P 500 ETF and Avantis U.S. Small Cap Value ETF, contribute the most to this yield. While dividends provide a steady income stream, the portfolio's primary focus is on capital appreciation. Investors seeking higher income might need to adjust their strategy or consider adding income-generating assets. However, this could alter the portfolio's growth potential and risk profile.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Invesco NASDAQ 100 ETF 0.15%
  • VanEck Semiconductor ETF 0.35%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.15%

The portfolio's total expense ratio (TER) is 0.15%, which is relatively low and cost-effective. This suggests that the portfolio is managed efficiently, with minimal impact on returns from management fees. The Vanguard S&P 500 ETF, with its extremely low cost, significantly contributes to keeping overall expenses down. While maintaining low costs is beneficial, investors should also ensure that the portfolio's composition aligns with their risk tolerance and investment goals. Keeping costs low is a positive aspect, but not at the expense of diversification and risk management.

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