A balanced portfolio with significant focus on North American equities and high correlation

Report created on Dec 28, 2024

Risk profile Info

4/7
Balanced
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

The portfolio is predominantly composed of two ETFs: Vanguard FTSE All-World UCITS ETF at 84% and iShares S&P 500 Swap UCITS ETF at 16%. This results in a strong equity focus, with nearly 100% of the portfolio invested in stocks. While this composition provides broad market exposure, it lacks diversification across different asset classes. Compared to common balanced portfolio benchmarks, which often include bonds and other asset types, this portfolio is heavily equity-weighted. To enhance diversification, consider incorporating non-equity assets such as bonds or real estate investment trusts (REITs), which can provide stability during market downturns.

Growth Info

Historically, the portfolio has achieved a robust Compound Annual Growth Rate (CAGR) of 15.35%, with a maximum drawdown of -16.28%. This indicates strong growth potential but also highlights vulnerability during market declines. The 27 days that account for 90% of returns suggest a reliance on a few high-performance periods. While past performance is encouraging, it's important to remember that historical returns do not guarantee future success. To mitigate potential risks, consider strategies that reduce volatility, such as diversifying into less correlated assets.

Projection Info

Monte Carlo simulations, which use historical data to project future outcomes, indicate a promising outlook with an annualized return of 18.32%. The simulations show a wide range of potential outcomes, with a 5th percentile return of 301.79% and a 67th percentile return of 1,160%. However, these projections are based on past data and assumptions, and actual future performance may differ. To better prepare for uncertainty, regularly review and adjust your portfolio to align with changing market conditions and personal financial goals.

Asset classes Info

  • Stocks
    100%

The portfolio is almost entirely allocated to stocks, with 99.95% in equities. This concentration can lead to higher volatility, as stocks are generally more susceptible to market fluctuations compared to bonds or other asset classes. While the current allocation may suit a growth-oriented strategy, it is less aligned with a balanced risk profile. To achieve a more balanced asset allocation, consider introducing fixed-income securities or alternative investments, which can help reduce risk and provide more consistent returns over time.

Sectors Info

  • Technology
    27%
  • Financials
    16%
  • Health Care
    11%
  • Consumer Discretionary
    10%
  • Industrials
    10%
  • Telecommunications
    8%
  • Consumer Staples
    6%
  • Energy
    4%
  • Basic Materials
    3%
  • Utilities
    3%
  • Real Estate
    2%

Sector allocation reveals a notable concentration in technology (26.77%) and financial services (15.97%), which can lead to increased volatility, especially during economic shifts affecting these sectors. Compared to common benchmarks, this allocation is tech-heavy, potentially exposing the portfolio to significant swings during market corrections or interest rate changes. To mitigate sector-specific risks, consider diversifying into underrepresented sectors like utilities or consumer defensive, which can offer stability during economic downturns.

Regions Info

  • North America
    71%
  • Europe Developed
    12%
  • Asien Schwellenländer
    5%
  • Japan
    5%
  • Asien
    3%
  • Australasia
    2%
  • Afrika/Mittlerer Osten
    1%
  • Latin America
    1%

Geographically, the portfolio is heavily weighted towards North America, with 70.96% exposure, followed by Europe Developed at 12.26%. This focus on North America may limit the benefits of geographic diversification, potentially increasing vulnerability to regional economic downturns. Compared to global benchmarks, the portfolio underrepresents emerging markets, which can offer growth opportunities. To enhance geographic diversification, consider increasing exposure to regions like Asia or Latin America, which may provide additional growth potential and risk mitigation.

Redundant positions Info

  • iShares S&P 500 Swap UCITS ETF USD (Acc)
    Vanguard FTSE All-World UCITS ETF USD Accumulation
    High correlation

The portfolio's assets, Vanguard FTSE All-World UCITS ETF and iShares S&P 500 Swap UCITS ETF, exhibit high correlation, meaning they tend to move together in response to market events. This high correlation can limit diversification benefits, as both ETFs are likely to react similarly during market downturns. To improve diversification and reduce risk, consider incorporating assets with lower correlation to the existing holdings, such as bonds or commodities, which can provide stability when equities are volatile.

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's current asset allocation may not be fully optimized along the Efficient Frontier, which represents the best possible risk-return trade-off. The high correlation between the two ETFs suggests room for improvement. By adjusting the allocation to include less correlated assets, you can potentially enhance the portfolio's efficiency. This optimization focuses on achieving the highest expected return for a given level of risk, rather than maximizing diversification. Regularly reassess your asset mix to ensure it aligns with your risk tolerance and return expectations.

Ongoing product costs Info

  • iShares S&P 500 Swap UCITS ETF USD (Acc) 0.07%
  • Vanguard FTSE All-World UCITS ETF USD Accumulation 0.22%
  • Weighted costs total (per year) 0.20%

The portfolio's total expense ratio (TER) is a low 0.2%, reflecting cost-effective fund choices. This low cost structure is advantageous for long-term growth, as high fees can erode returns over time. Compared to industry averages, the portfolio's costs are impressively low, supporting better compounding of returns. To maintain cost efficiency, regularly review the fee structure and explore opportunities to switch to lower-cost alternatives if available, ensuring that expenses remain minimized as the portfolio evolves.

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