Balanced Canadian portfolio with concentrated US equity and moderate diversification

Report created on Mar 9, 2025

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

3/5
Moderately Diversified
Less diversification More diversification

Positions

The portfolio consists of three ETFs, with the iShares Core Equity Portfolio making up 50%, followed by the Vanguard S&P 500 Index ETF at 25.93%, and the BMO MSCI USA High Quality at 24.07%. This allocation leans heavily towards US equities, which is typical for Canadian investors seeking growth. Compared to a balanced benchmark, this portfolio has a higher concentration in US equities, which could expose it to regional risks. To better align with a balanced profile, consider diversifying with other asset classes or geographic regions to mitigate potential risks associated with this concentration.

Growth Info

Historically, the portfolio has performed well, boasting a Compound Annual Growth Rate (CAGR) of 15.49%. This is a strong performance compared to typical benchmarks, which often average lower returns. However, the maximum drawdown of -27.75% indicates significant volatility, which may concern some investors. While past performance is not indicative of future results, this history demonstrates the potential for both high returns and considerable risk. To manage this, consider maintaining a diversified allocation to cushion against future downturns.

Projection Info

Monte Carlo simulations, which use historical data to project potential future outcomes, suggest a wide range of possibilities for this portfolio. The 5th percentile outcome predicts a 180.4% return, while the 50th percentile suggests 727.9%, and the 67th percentile 1,011.0%. These projections indicate a positive outlook, but it's essential to remember that simulations are not guarantees. They provide a range of potential outcomes based on historical trends. Regularly reviewing and adjusting the portfolio can help align it with desired risk levels and return expectations.

Asset classes Info

  • US Equity
    72%
  • Stocks
    12%

The portfolio is heavily weighted towards US equity at 72%, with the remaining 12% in general equity and no significant allocation to cash or other asset classes. This concentration can lead to high volatility, especially during market downturns. Compared to a balanced benchmark, the lack of diversification across asset classes may limit the portfolio's ability to mitigate risk. To enhance diversification, consider incorporating fixed income or alternative asset classes, which can provide stability and reduce overall portfolio risk.

Sectors Info

  • Technology
    26%
  • Financials
    17%
  • Health Care
    11%
  • Industrials
    10%
  • Telecommunications
    9%
  • Consumer Discretionary
    9%
  • Consumer Staples
    6%
  • Energy
    4%
  • Basic Materials
    3%
  • Utilities
    2%
  • Real Estate
    2%

Sector allocation shows a significant concentration in technology at 26%, followed by financial services at 17% and healthcare at 11%. This tech-heavy allocation may lead to higher volatility, particularly during interest rate hikes, which can impact tech stocks. Compared to common benchmarks, this concentration is notable and could benefit from a more balanced approach. Consider diversifying into underrepresented sectors, such as utilities or real estate, to reduce sector-specific risks and enhance overall portfolio stability.

Regions Info

  • North America
    84%
  • Europe Developed
    8%
  • Japan
    3%
  • Asia Emerging
    1%
  • Asia Developed
    1%
  • Australasia
    1%

The portfolio's geographic exposure is predominantly in North America at 84%, with minimal allocation to other regions. This over-reliance on North American markets can increase vulnerability to regional economic downturns. Compared to global benchmarks, which often have more diversified geographic allocations, this portfolio may benefit from increased international exposure. Consider adding assets from Europe, Asia, or emerging markets to enhance diversification and reduce potential risks associated with regional concentration.

Market capitalization Info

  • Mega-cap
    46%
  • Large-cap
    34%
  • Mid-cap
    17%
  • Small-cap
    3%

The portfolio is primarily invested in large-cap companies, with 46% in mega-caps and 34% in big caps. This focus on large-cap stocks provides stability and reduced volatility compared to smaller companies. However, it may limit growth potential. While this allocation aligns with benchmarks for stability, incorporating more mid-cap or small-cap stocks could increase growth opportunities. Balancing market capitalization exposure can enhance diversification and provide a broader range of potential returns.

Redundant positions Info

  • BMO MSCI USA High Quality
    Vanguard S&P 500 Index ETF
    High correlation

The portfolio includes highly correlated assets, particularly the BMO MSCI USA High Quality and Vanguard S&P 500 Index ETF. High correlation means these assets tend to move together, reducing diversification benefits. During market downturns, this can lead to larger losses. To improve diversification, consider replacing one of these assets with a less correlated option that still aligns with the portfolio's goals. This adjustment can help manage risk more effectively and improve overall portfolio stability.

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 can be optimized using the Efficient Frontier, a concept that identifies the best possible risk-return ratio. This involves adjusting the current assets and their allocation to achieve maximum efficiency. While the portfolio is moderately diversified, further optimization could enhance returns without increasing risk. Consider rebalancing to align with the Efficient Frontier, focusing on the current asset mix. This strategy can help achieve the best possible outcomes while maintaining the portfolio's balanced risk profile.

Dividends Info

  • Vanguard S&P 500 Index ETF 1.00%
  • iShares Core Equity Portfolio 2.00%
  • BMO MSCI USA High Quality 0.30%
  • Weighted yield (per year) 1.33%

The portfolio's dividend yield is 1.33%, with the Vanguard S&P 500 Index ETF contributing 1.00%, iShares Core Equity 2.00%, and BMO MSCI USA High Quality 0.30%. For investors seeking income, dividends provide a steady return stream. However, this yield is relatively low, reflecting a growth-oriented focus. If income generation is a priority, consider adding higher-yielding assets to the portfolio. Balancing growth and income can enhance overall returns and provide more consistent cash flow.

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