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A tech-heavy growth portfolio with strong historic returns but high sector concentration

Report created on Dec 26, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification
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Positions

This portfolio is heavily concentrated in technology, with 40% in VanEck Semiconductor ETF and 20% in Invesco NASDAQ 100 ETF. The remaining allocations include Vanguard S&P 500 ETF at 20%, Global X Robotics & AI ETF at 10%, and iShares MSCI World ETF at 10%. Compared to common benchmarks, this portfolio leans significantly towards tech, limiting exposure to other sectors. While technology can drive growth, it's essential to balance it with other sectors to mitigate risks associated with tech volatility. Consider diversifying further by incorporating more varied sectors to achieve a more balanced risk profile.

Growth Info

Historically, this portfolio has performed exceptionally well, achieving a CAGR of 20.65%. However, it also experienced a maximum drawdown of -38.29%, indicating significant volatility. This performance aligns with the high-risk, high-reward nature of tech-heavy investments. While past performance is not indicative of future results, it's crucial to understand the potential for large fluctuations. To manage risk, consider strategies such as setting stop-loss orders or diversifying into less volatile sectors, which can help stabilize returns during market downturns.

Projection Info

The Monte Carlo simulation, which uses historical data to project future outcomes, shows a wide range of potential returns. With a 50th percentile return of 670.21% and a 5th percentile return of 73.69%, the projections highlight both the potential for substantial gains and the risk of lower returns. While simulations provide insights, they rely on past data and cannot predict future events. To improve confidence in future outcomes, regularly review the portfolio's allocation and adjust based on market conditions and personal risk tolerance.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely composed of stocks, with a minimal allocation to cash and other assets. This high equity exposure aligns with a growth-oriented strategy but may increase vulnerability to market volatility. A more diversified asset class allocation could enhance stability, especially during market downturns. Consider incorporating bonds or alternative investments to introduce balance and reduce risk, as they often behave differently from stocks, helping to cushion against potential losses.

Sectors Info

  • Technology
    64%
  • Industrials
    7%
  • Consumer Discretionary
    6%
  • Telecommunications
    6%
  • Health Care
    6%
  • Financials
    5%
  • Consumer Staples
    3%
  • Energy
    1%
  • Utilities
    1%
  • Basic Materials
    1%
  • Real Estate
    1%

With over 63% allocated to technology, this portfolio is heavily concentrated in a single sector. While tech offers growth potential, it also brings higher volatility, especially during economic shifts or regulatory changes. Other sectors like healthcare and financial services are underrepresented. Diversifying sector exposure can mitigate sector-specific risks and provide more consistent returns. Consider gradually reallocating funds to sectors like healthcare, consumer goods, or energy to achieve a more balanced sectoral distribution.

Regions Info

  • North America
    84%
  • Europe Developed
    6%
  • Asia Developed
    6%
  • Japan
    3%

Geographically, the portfolio is predominantly focused on North America, with 84.49% exposure. This heavy bias limits the benefits of global diversification. Regions like Europe and Asia are underrepresented, potentially missing out on growth opportunities in emerging markets. A more balanced geographic allocation can reduce regional risks and capture growth from different global economies. Explore increasing exposure to international markets to enhance diversification and potentially tap into varied economic cycles.

Redundant positions Info

  • iShares MSCI World ETF
    Vanguard S&P 500 ETF
    High correlation

The portfolio shows high correlation between iShares MSCI World ETF and Vanguard S&P 500 ETF, which can limit diversification benefits. Highly correlated assets tend to move in tandem, reducing the portfolio's ability to buffer against market fluctuations. To improve diversification, consider replacing one of these ETFs with an asset that has a lower correlation, thus enhancing the portfolio's resilience during market downturns. This adjustment could improve the overall risk-return 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.

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Before optimizing the portfolio using the Efficient Frontier, consider addressing the high correlation between certain assets. The Efficient Frontier helps in finding the best risk-return ratio for a given set of assets. However, without addressing correlation, optimization may not yield significant diversification benefits. Focus on reducing overlap first, then use optimization techniques to refine the portfolio's efficiency. This approach ensures that risk and return are balanced effectively.

Dividends Info

  • Global X Robotics & Artificial Intelligence ETF 0.10%
  • Invesco NASDAQ 100 ETF 0.40%
  • iShares MSCI World ETF 0.70%
  • Vanguard S&P 500 ETF 1.20%
  • Weighted yield (per year) 0.40%

The portfolio's total dividend yield is relatively low at 0.4%, reflecting its growth-focused strategy. While dividends can provide a steady income stream, growth portfolios often prioritize capital appreciation. For investors seeking income, consider increasing allocations to higher-yielding assets. However, if growth remains the primary goal, maintaining a low dividend focus is appropriate. Regularly review dividend policies to ensure they align with your financial objectives and adjust as necessary.

Ongoing product costs Info

  • Global X Robotics & Artificial Intelligence ETF 0.68%
  • Invesco NASDAQ 100 ETF 0.15%
  • VanEck Semiconductor ETF 0.35%
  • iShares MSCI World ETF 0.24%
  • Vanguard S&P 500 ETF 0.03%
  • Weighted costs total (per year) 0.27%

The overall portfolio cost, with a Total Expense Ratio (TER) of 0.27%, is relatively low, supporting better long-term returns. Lower costs mean more of your investment returns are retained, enhancing compounding over time. The high fee of the Global X Robotics & AI ETF at 0.68% is notable. Consider evaluating whether this ETF's performance justifies its cost or if a lower-cost alternative could be considered. Keeping expenses in check is crucial for maximizing net returns.

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