Moderately Diversified Growth Portfolio with Strong Historic Performance and High Risk Appetite
Report created on Dec 1, 2024Risk profile
5/7
Diversification profile
3/5
Positions
-
XM Invesco S&P MidCap Momentum ETF
XMMO - US46137V4648 45.00% -
SC Schwab U.S. Large-Cap Growth ETF
SCHG - US8085243009 40.00% -
AV Avantis® International Small Cap Value ETF
AVDV - US0250728021 15.00%
The portfolio is composed of three ETFs: Invesco S&P MidCap Momentum ETF (45%), Schwab U.S. Large-Cap Growth ETF (40%), and Avantis International Small Cap Value ETF (15%). This composition indicates a focus on growth with a significant allocation to mid-cap and large-cap stocks. The inclusion of international small-cap value stocks adds a layer of diversification. While the portfolio is moderately diversified, it leans heavily on momentum and growth strategies, which can lead to higher volatility. To enhance diversification, consider incorporating a broader range of asset classes or sectors.
Growth
Historically, the portfolio has delivered an impressive CAGR of 19.64%, indicating strong past performance. However, it also experienced a maximum drawdown of -35.36%, reflecting the inherent risk of growth-oriented investments. The concentration of returns in just 21 days suggests high volatility, which can be challenging for risk-averse investors. To mitigate this, consider diversifying into more stable asset classes or strategies that can provide a buffer during market downturns, while still maintaining the growth potential.
Projection
Using a Monte Carlo simulation with 1,000 iterations, the portfolio shows a wide range of potential outcomes. The 5th percentile projects a minimal gain of 98.72%, while the 50th and 67th percentiles predict significant growth of 764.4% and 1,221.25%, respectively. With 987 simulations yielding positive returns, the annualized return stands at 19.77%. This suggests a high probability of positive outcomes, but also highlights the uncertainty and volatility inherent in the portfolio. To manage risk, consider rebalancing periodically and maintaining a long-term investment horizon.
Asset classes
- Stocks 100%
The portfolio is heavily weighted towards stocks, with 99.77% in equities and minimal allocations to cash and bonds. This high equity exposure aligns with a growth investment strategy but increases the risk during market downturns. Diversifying into bonds or other fixed-income assets could provide stability and reduce overall portfolio risk. While the current allocation supports growth, a more balanced approach could offer better risk-adjusted returns over time, especially in volatile markets.
Sectors
- Technology 23%
- Industrials 18%
- Financials 17%
- Consumer Discretionary 15%
- Health Care 7%
- Telecommunications 5%
- Basic Materials 4%
- Consumer Staples 4%
- Energy 4%
- Real Estate 1%
- Utilities 1%
Sector allocation is concentrated in technology (22.54%), industrials (18.46%), and financial services (16.83%), with smaller allocations in consumer cyclicals and healthcare. This concentration can lead to sector-specific risks, particularly if these sectors underperform. Diversifying into other sectors like consumer defensives or utilities could help mitigate these risks. A more balanced sector allocation would provide a cushion against sector-specific downturns and ensure more consistent performance across different market conditions.
Regions
- North America 42%
- Europe Developed 6%
- Japan 5%
- Australasia 1%
- Africa/Middle East 1%
Geographically, the portfolio is predominantly exposed to North America (41.64%), with limited exposure to Europe, Japan, and other regions. This regional concentration can be risky if North American markets face downturns. Diversifying into emerging markets or other developed regions could enhance international exposure and reduce geographic risk. A broader geographic diversification would help capture growth opportunities worldwide and provide a hedge against regional economic fluctuations.
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 analysis suggests that the current allocation is near the efficient frontier for a growth-oriented strategy. However, to achieve a riskier or more conservative portfolio, adjustments can be made by shifting the balance between equities and fixed-income assets. Increasing bond exposure could make the portfolio more conservative, while adding more equities could enhance growth potential. Before optimizing, it's crucial to ensure that diversification and correlation are adequately addressed, as these factors significantly impact risk and return dynamics.
Dividends
- Avantis® International Small Cap Value ETF 3.10%
- Schwab U.S. Large-Cap Growth ETF 0.40%
- Invesco S&P MidCap Momentum ETF 0.30%
- Weighted yield (per year) 0.76%
The portfolio's dividend yield is modest at 0.76%, with the highest contribution from the Avantis International Small Cap Value ETF at 3.1%. While dividends provide a steady income stream, this yield is relatively low for income-focused investors. To increase dividend income, consider reallocating a portion of the portfolio to higher-yielding assets. However, it's essential to balance income needs with growth objectives to maintain the portfolio's overall performance potential.
Ongoing product costs
- Avantis® International Small Cap Value ETF 0.36%
- Schwab U.S. Large-Cap Growth ETF 0.04%
- Invesco S&P MidCap Momentum ETF 0.34%
- Weighted costs total (per year) 0.22%
The portfolio's total expense ratio (TER) is 0.22%, which is relatively low and cost-effective. The Schwab U.S. Large-Cap Growth ETF has the lowest cost at 0.04%, while the Avantis International Small Cap Value ETF is the highest at 0.36%. Keeping costs low is crucial for maximizing net returns over time. To further optimize costs, periodically review the expense ratios of current holdings and consider lower-cost alternatives if available. Maintaining a focus on cost-efficiency will enhance long-term portfolio growth.
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