Growth-Oriented Portfolio with Moderate Diversification and High Correlation Among Key Holdings

Report created on Aug 8, 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 primarily composed of ETFs, with the Vanguard S&P 500 ETF holding the largest allocation at 60%, followed by the Invesco NASDAQ 100 ETF and VanEck Semiconductor ETF. This composition reflects a strong focus on large-cap U.S. equities, with a particular emphasis on technology and growth sectors. The portfolio includes a mix of sector-specific ETFs, such as energy and pharmaceuticals, adding some diversity. Despite this, the portfolio remains heavily weighted towards U.S. markets, suggesting a domestic bias. This allocation may limit exposure to international growth opportunities.

Growth Info

Historically, the portfolio has delivered impressive returns, with a compound annual growth rate (CAGR) of 18.87%. However, it has also experienced a significant maximum drawdown of 25.1%, indicating vulnerability during market downturns. The high returns are concentrated in just 24 days, emphasizing the importance of staying invested to capture these gains. This performance highlights the potential for strong growth, but also underscores the need for risk management strategies to mitigate large drawdowns and protect capital during volatile periods.

Projection Info

A Monte Carlo simulation, which uses random sampling to model potential future outcomes, suggests a wide range of possible returns for the portfolio. The simulation indicates a 5th percentile return of 255.84% and a median return of 1,564.4%, with an annualized return of 25.97%. These projections highlight the potential for substantial growth, but also reflect significant uncertainty. Investors should be prepared for variability in returns and consider aligning their expectations with their risk tolerance and long-term investment goals.

Asset classes Info

  • Stocks
    98%
  • Cash
    1%

The portfolio is heavily skewed towards stocks, comprising over 98% of the allocation, with minimal exposure to cash, bonds, or other asset classes. This concentration in equities suggests a high-risk, high-reward strategy, suitable for investors with a long-term horizon and a higher risk tolerance. However, the lack of diversification across asset classes may expose the portfolio to increased volatility. Incorporating a broader mix of asset classes could help reduce risk and improve stability, especially during periods of market turbulence.

Sectors Info

  • Technology
    36%
  • Health Care
    11%
  • Financials
    10%
  • Industrials
    9%
  • Consumer Discretionary
    9%
  • Telecommunications
    8%
  • Energy
    6%
  • Consumer Staples
    5%
  • Utilities
    2%
  • Basic Materials
    2%
  • Real Estate
    2%

Sector allocation is concentrated, with technology representing the largest share at 35.6%, followed by healthcare and financial services. This focus on growth-oriented sectors aligns with the portfolio's overall growth objective. However, the concentration in a few sectors increases exposure to sector-specific risks. Broadening sector allocation could enhance diversification and reduce the potential impact of adverse events in any single sector. Investors should consider balancing growth with stability by including sectors that may perform differently under varying market conditions.

Regions Info

  • North America
    96%
  • Europe Developed
    2%
  • Asia Developed
    1%

Geographically, the portfolio is predominantly invested in North America, accounting for over 96% of the allocation. This domestic focus may limit exposure to international markets and the benefits of global diversification. While U.S. markets have historically been strong performers, diversifying geographically could provide access to growth opportunities in emerging markets and reduce reliance on a single economic region. Investors might consider exploring global ETFs to achieve a more balanced geographic allocation.

Redundant positions Info

  • Invesco NASDAQ 100 ETF
    Vanguard S&P 500 ETF
    ProShares Ultra S&P500
    High correlation

The portfolio exhibits high correlation among key holdings, particularly between the Invesco NASDAQ 100 ETF, Vanguard S&P 500 ETF, and ProShares Ultra S&P500. This correlation indicates that these assets tend to move in the same direction, offering limited diversification benefits. Reducing overlap by selecting ETFs with different underlying assets or investment strategies could enhance diversification and mitigate risks associated with market fluctuations. This approach would help create a more resilient portfolio capable of weathering various market conditions.

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, it's important to address the high correlation among certain assets, which limits diversification benefits. By reducing overlap and selecting a mix of assets with lower correlation, the portfolio could achieve a more balanced risk-return profile. Moving along the efficient frontier allows for adjustments to risk levels, enabling a shift towards a riskier or more conservative portfolio. However, given the current composition, the primary focus should be on enhancing diversification to better manage risk and improve long-term performance.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • Invesco Aerospace & Defense ETF 0.50%
  • VanEck Pharmaceutical ETF 1.80%
  • Invesco NASDAQ 100 ETF 0.60%
  • VanEck Semiconductor ETF 0.40%
  • ProShares Ultra S&P500 0.70%
  • Vanguard S&P 500 ETF 1.20%
  • Energy Select Sector SPDR® Fund 3.00%
  • Weighted yield (per year) 1.12%

The portfolio's dividend yield stands at 1.12%, with the Energy Select Sector SPDR® Fund contributing the highest yield at 3.0%. While the overall yield is modest, it provides some income potential alongside capital appreciation. Investors seeking higher income might explore options for increasing dividend exposure, but should balance this with the portfolio's growth objectives. Maintaining a focus on total return, including both income and capital gains, can help achieve a well-rounded investment strategy.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • Invesco Aerospace & Defense ETF 0.58%
  • VanEck Pharmaceutical ETF 0.36%
  • Invesco NASDAQ 100 ETF 0.15%
  • VanEck Semiconductor ETF 0.35%
  • ProShares Ultra S&P500 0.91%
  • Vanguard S&P 500 ETF 0.03%
  • Energy Select Sector SPDR® Fund 0.09%
  • Weighted costs total (per year) 0.17%

Portfolio costs are relatively low, with a total expense ratio (TER) of 0.17%. The Vanguard S&P 500 ETF contributes to this low cost, with an expense ratio of just 0.03%. Keeping costs low is crucial for maximizing net returns over time. However, some ETFs, like the ProShares Ultra S&P500, have higher expense ratios, which could erode returns. Investors should remain mindful of fees and consider cost-effective alternatives that align with their investment strategy. Maintaining a focus on minimizing costs can enhance overall portfolio performance.

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