Moderately Diversified Growth Portfolio with High Technology Exposure and Notable Risk Characteristics

Report created on Dec 3, 2024

Risk profile Info

5/7
Growth
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio is composed of a variety of assets, primarily focused on equities, with a strong emphasis on technology stocks. The largest position is the Vanguard Information Technology Index Fund ETF, which constitutes around 16.66% of the portfolio, followed by other significant holdings like the Vanguard S&P 500 ETF and Main Street Capital Corporation. The portfolio is moderately diversified across different asset classes and sectors, with a notable concentration in technology. This composition suggests a growth-oriented strategy, aiming for capital appreciation. It’s important to maintain a balance to mitigate risks associated with sector concentration.

Growth Info

Historically, the portfolio has shown remarkable performance, with a Compound Annual Growth Rate (CAGR) of 29.12%. However, this impressive growth comes with a significant downside, evidenced by a maximum drawdown of -43.36%. This indicates that while the portfolio can achieve substantial gains, it is also susceptible to considerable losses during market downturns. The days that make up 90% of returns are relatively few, highlighting the portfolio's reliance on specific periods of strong performance. Understanding these dynamics is crucial to managing expectations and preparing for potential volatility.

Projection Info

A forward projection using a Monte Carlo simulation provides insights into the potential future performance of the portfolio. With 1,000 simulations, the analysis shows a range of outcomes for a hypothetical initial investment. The median (50th percentile) end portfolio value is 2,413.33%, suggesting a positive outlook. However, the 5th percentile at 180.1% indicates possible downside risks. The annualized return across all simulations is 33.68%, underscoring the portfolio's growth potential. Monte Carlo simulations help in understanding the variability of returns and can aid in setting realistic expectations.

Asset classes Info

  • Stocks
    95%
  • Other
    4%

The portfolio is heavily weighted towards stocks, making up over 95% of its composition. This high allocation to equities aligns with a growth-focused strategy, aiming for substantial capital gains. However, the lack of significant exposure to other asset classes, such as bonds or cash, implies a higher risk profile. Diversifying into other asset classes could help in reducing volatility and providing a cushion during market downturns. Investors might consider balancing the portfolio by incorporating more fixed-income securities to achieve a more stable growth trajectory.

Sectors Info

  • Technology
    53%
  • Financials
    19%
  • Telecommunications
    9%
  • Consumer Discretionary
    4%
  • Industrials
    3%
  • Health Care
    3%
  • Consumer Staples
    2%
  • Real Estate
    1%
  • Basic Materials
    1%
  • Energy
    1%
  • Utilities
    1%

The sector allocation reveals a significant concentration in technology, accounting for over 52% of the portfolio. This heavy emphasis on tech stocks can drive high returns but also introduces sector-specific risks. The financial services sector is the next largest allocation, adding some diversification. However, other sectors like consumer cyclicals, industrials, and healthcare have minimal representation. A more balanced sector allocation could enhance diversification and reduce the impact of adverse developments in the tech sector. Reviewing sector weights periodically can help maintain a balanced risk-return profile.

Regions Info

  • North America
    79%
  • Europe Developed
    14%
  • Asia Emerging
    1%

Geographically, the portfolio is predominantly focused on North America, with nearly 80% of its assets allocated there. While this concentration benefits from exposure to a stable and mature market, it limits diversification across global regions. The portfolio includes some exposure to developed Europe and emerging Asia, but these allocations are relatively small. Expanding geographic diversification can help mitigate risks associated with regional economic downturns and capture growth opportunities in other parts of the world. A more global perspective could enhance the portfolio's resilience.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Vanguard Information Technology Index Fund ETF Shares
    High correlation

Within the portfolio, there are noticeable correlations among certain assets, particularly between the Invesco NASDAQ 100 ETF and the Vanguard Information Technology Index Fund ETF Shares. This high correlation suggests overlapping exposures that may not provide additional diversification benefits. While correlated assets can amplify returns during market upswings, they can also exacerbate losses during downturns. Reducing these overlaps could enhance the portfolio's diversification and improve risk-adjusted returns. Analyzing asset correlations regularly can help identify and address redundancies.

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 the portfolio, addressing the issue of overlapping assets is crucial as it currently reduces diversification benefits. By removing or reducing highly correlated assets, the portfolio can achieve a more balanced risk profile. Moving along the efficient frontier, investors can choose to increase risk for potentially higher returns or decrease risk for more stability. This involves adjusting asset allocations to either enhance growth potential or reduce volatility. Once the portfolio's diversification is improved, optimization can further refine the balance between risk and return.

Dividends Info

  • ASML Holding NV ADR 0.90%
  • Alphabet Inc Class A 0.20%
  • Main Street Capital Corporation 7.40%
  • Invesco NASDAQ 100 ETF 0.60%
  • SPDR® S&P 600 Small Cap Value ETF 2.10%
  • Vanguard Information Technology Index Fund ETF Shares 0.60%
  • Vanguard S&P 500 ETF 1.20%
  • Vanguard Total International Stock Index Fund ETF Shares 3.00%
  • Weighted yield (per year) 1.77%

The portfolio offers a modest dividend yield of 1.77%, with Main Street Capital Corporation being the standout contributor at 7.4%. While dividends provide a steady income stream, the overall yield is relatively low due to the portfolio's focus on growth-oriented stocks. Investors seeking higher income might consider increasing allocations to dividend-paying stocks or funds. However, it's important to balance the pursuit of income with growth objectives. Evaluating the dividend yield in the context of total return goals can help align the portfolio with the investor's financial needs.

Ongoing product costs Info

  • Grayscale Bitcoin Trust (BTC) 1.50%
  • Invesco NASDAQ 100 ETF 0.15%
  • SPDR® S&P 600 Small Cap Value ETF 0.15%
  • Vanguard Information Technology Index Fund ETF Shares 0.10%
  • Vanguard S&P 500 ETF 0.03%
  • Vanguard Total International Stock Index Fund ETF Shares 0.08%
  • Weighted costs total (per year) 0.11%

The portfolio's total expense ratio (TER) is 0.11%, which is quite competitive and reflects the cost-effectiveness of the selected ETFs and stocks. The Grayscale Bitcoin Trust (BTC) has the highest individual cost at 1.5%, which could impact overall returns. Keeping investment costs low is crucial for maximizing net returns. While the current TER is reasonable, investors should remain vigilant about changes in fund fees and consider alternatives if costs rise. Regularly reviewing and optimizing the cost structure can contribute to better long-term performance.

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