Balanced Canadian Portfolio with High US Equity Exposure and Technology Focused

Report created on Dec 5, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

2/5
Low Diversity
Less diversification More diversification

Positions

The portfolio is heavily weighted towards the Vanguard S&P 500 Index ETF, making up 70% of the total allocation. Invesco NASDAQ 100 Index ETF CAD Units and TD Global Technology Leaders Index ETF complement the rest, with 20% and 10% respectively. This composition reflects a strong focus on US equities, particularly large-cap stocks. While these ETFs are well-regarded for their performance, the lack of diversification could pose a risk if the US market faces downturns. To improve diversification, consider adding other asset classes or regions to balance the portfolio and reduce dependency on US equities.

Growth Info

Historically, the portfolio has shown impressive returns, with a compound annual growth rate (CAGR) of 17.88%. However, it also experienced a significant maximum drawdown of -25.47%, indicating vulnerability during market downturns. The performance is largely driven by the US equity market, particularly the technology sector, which has seen substantial growth over the past decade. To mitigate future risks, consider diversifying into sectors or regions that may perform differently under varying market conditions. This could help stabilize returns and reduce the impact of potential drawdowns.

Projection Info

Using a Monte Carlo simulation with 1,000 iterations, the portfolio's future performance shows a wide range of possible outcomes. Assuming a hypothetical initial investment, the 5th percentile projects a return of 271.36%, while the 50th percentile is at 1,046.93%, and the 67th percentile at 1,486.59%. The annualized return across all simulations is 20.61%. This suggests potential for significant growth, but also highlights uncertainty. To improve confidence in future outcomes, consider diversifying the portfolio to include assets with different risk profiles and expected returns.

Asset classes Info

  • US Equity
    98%

The portfolio is almost entirely composed of US equities, with a staggering 98.32% allocation. This single asset class focus increases vulnerability to market-specific risks and limits potential growth opportunities from other asset types. Diversifying into other asset classes, such as bonds or international equities, can help balance risk and return. By incorporating a broader range of asset classes, the portfolio can better withstand market fluctuations and potentially enhance overall performance.

Sectors Info

  • Technology
    40%
  • Telecommunications
    11%
  • Consumer Discretionary
    11%
  • Financials
    10%
  • Health Care
    9%
  • Industrials
    6%
  • Consumer Staples
    5%
  • Energy
    2%
  • Utilities
    2%
  • Real Estate
    2%
  • Basic Materials
    2%

The portfolio is heavily concentrated in the technology sector, accounting for nearly 40% of the allocation. While this has been a high-performing sector, the lack of sector diversification could lead to increased volatility. Other sectors, such as healthcare and financial services, are represented but to a lesser extent. To reduce sector-specific risks, consider reallocating some investments into underrepresented sectors that may offer growth potential or stability, depending on market conditions. This approach can help achieve a more balanced sector allocation and mitigate potential downturns in any single sector.

Regions Info

  • North America
    98%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly focused on North America, with 98.10% of assets allocated there. This regional concentration limits exposure to global markets and potential growth opportunities outside North America. To enhance geographic diversification, consider adding investments from other regions, such as Europe, Asia, or emerging markets. By broadening the geographic scope, the portfolio can benefit from growth in different economies and reduce the impact of regional economic downturns on overall performance.

Redundant positions Info

  • TD Global Technology Leaders Index ETF
    Invesco NASDAQ 100 Index ETF CAD Units
    High correlation

The portfolio shows high correlation between the TD Global Technology Leaders Index ETF and the Invesco NASDAQ 100 Index ETF CAD Units. This indicates that these assets tend to move in the same direction, reducing diversification benefits. To optimize the portfolio, consider replacing one of these highly correlated assets with an investment that has a lower correlation to the existing holdings. This can help achieve better diversification and potentially improve risk-adjusted returns by spreading exposure across a broader range of market movements.

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, focus on reducing overlap between highly correlated assets, which currently limits diversification. Moving along the efficient frontier, a more conservative portfolio can be achieved by incorporating bonds or diversifying geographically. Conversely, a riskier portfolio could include more growth-oriented assets. By addressing correlation issues first, the portfolio can better align with desired risk and return objectives. Once diversification is improved, optimization can further fine-tune asset allocation to enhance performance.

Dividends Info

  • Invesco NASDAQ 100 Index ETF CAD Units 0.40%
  • TD Global Technology Leaders Index ETF 0.10%
  • Vanguard S&P 500 Index ETF 0.70%
  • Weighted yield (per year) 0.58%

The portfolio's dividend yield is relatively low at 0.58%, with the highest contribution from the Vanguard S&P 500 Index ETF at 0.7%. While dividends can provide a steady income stream, this portfolio is more focused on growth through capital appreciation rather than income generation. Investors seeking higher dividend yields may want to consider adding dividend-focused investments to the portfolio. This could enhance income potential while maintaining exposure to growth-oriented assets, creating a more balanced approach to total return.

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