A cautiously diversified portfolio with a strong North American focus and moderate risk exposure

Report created on Jan 30, 2025

Risk profile Info

3/7
Cautious
Less risk More risk

Diversification profile Info

4/5
Broadly Diversified
Less diversification More diversification

Positions

The portfolio is primarily composed of ETFs, with a significant 55% allocation to the iShares Core Equity Portfolio, complemented by the iShares S&P/TSX 60 and Vanguard Growth Portfolio. A small 6% is invested in MDA Ltd, a common stock. This composition is typical for a cautious investor, focusing on broad diversification while maintaining a core exposure to equities. The portfolio's structure aligns well with a conservative risk profile, offering stability through diversified ETFs. To enhance diversification, consider adding more varied asset types, such as bonds or international equities, which may provide additional risk management benefits.

Growth Info

Historically, the portfolio has performed well, boasting a Compound Annual Growth Rate (CAGR) of 11.42% and a maximum drawdown of -19.27%. This indicates a strong growth trajectory with moderate volatility. Compared to typical benchmarks, this performance is commendable, especially considering the cautious risk classification. However, it's important to remember that past performance doesn't guarantee future results. Investors should continue monitoring market conditions and adjust allocations as needed to maintain performance aligned with risk tolerance and investment goals.

Projection Info

The Monte Carlo simulation, which uses historical data to project future outcomes, shows promising results for this portfolio. With 1,000 simulations, the median (50th percentile) projected return is 378.5%, and 97% of simulations predict positive returns. While these projections are optimistic, it's vital to understand that they are based on historical trends and assumptions that may not hold true in the future. Investors should use these projections as one of many tools in their decision-making process, considering market changes and personal financial goals.

Asset classes Info

  • Stocks
    38%
  • US Equity
    32%
  • Stocks
    6%
  • Bonds
    4%

The portfolio's asset allocation is heavily weighted towards equities, with 38% in general equity and 32% in US equity, totaling 70% in equities. This strong equity focus supports growth but may expose the portfolio to higher volatility. The inclusion of bonds at 4% provides some stability, though it is relatively low. For a cautious investor, increasing bond allocation could help mitigate risk. The current allocation aligns with a moderate risk profile, but for added safety, consider diversifying further into fixed income or alternative assets.

Sectors Info

  • Financials
    23%
  • Technology
    17%
  • Industrials
    17%
  • Energy
    9%
  • Consumer Discretionary
    8%
  • Basic Materials
    6%
  • Health Care
    6%
  • Telecommunications
    5%
  • Consumer Staples
    5%
  • Utilities
    3%
  • Real Estate
    2%

Sector allocation shows a notable concentration in Financial Services at 23%, followed by Technology and Industrials, each at 17%. This concentration may expose the portfolio to sector-specific risks, such as regulatory changes or economic shifts affecting these industries. While a diversified sector mix is beneficial, it's crucial to monitor sector trends and adjust allocations to avoid overexposure. Consider rebalancing towards sectors with lower current allocation, like Healthcare or Consumer Defensive, to achieve a more balanced risk distribution.

Regions Info

  • North America
    79%
  • Europe Developed
    11%
  • Japan
    4%
  • Asia Emerging
    2%
  • Asia
    2%
  • Australasia
    1%
  • Africa/Middle East
    1%

With 79% of assets in North America, the portfolio is heavily skewed towards this region. While this aligns with the client's Canadian base, it limits exposure to global markets, which can provide diversification and growth opportunities. The remaining geographic allocation is spread thinly across Europe, Japan, and other regions. To enhance geographic diversification and reduce potential regional risks, consider increasing exposure to emerging markets or underrepresented regions, which may offer growth potential and risk mitigation.

Market capitalization Info

  • Mega-cap
    42%
  • Large-cap
    29%
  • Mid-cap
    21%
  • Small-cap
    4%
  • Micro-cap
    1%

The portfolio's market capitalization is predominantly in mega and big-cap stocks, comprising 71% of the total allocation. This focus on larger companies typically offers stability and lower volatility but may limit exposure to the potential high growth of smaller companies. With only 5% allocated to small and micro caps, there's limited participation in these potentially high-reward segments. To balance stability with growth potential, consider gradually increasing exposure to medium and small-cap stocks, which can offer diversification and a different risk-return profile.

Redundant positions Info

  • iShares Core Equity Portfolio
    Vanguard Growth Portfolio
    High correlation

The portfolio contains highly correlated assets, particularly between the iShares Core Equity Portfolio and the Vanguard Growth Portfolio. High correlation means these assets move together, which can reduce diversification benefits, especially during downturns. While correlation can indicate consistency, it also suggests limited diversification. To optimize risk management, consider reducing overlap by selecting assets with lower correlation, ensuring a broader range of movements and reducing the impact of market volatility on the overall portfolio.

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 allocation suggests potential for optimization based on the Efficient Frontier, which balances risk and return using existing assets. However, the presence of highly correlated assets may hinder achieving the optimal risk-return ratio. Before optimizing, consider reducing these overlaps to enhance diversification. Once addressed, reallocating within the current asset pool can help achieve a more efficient portfolio, maximizing returns for the given level of risk. This process involves rebalancing to ensure each asset contributes effectively to the portfolio's overall objectives.

Dividends Info

  • Vanguard Growth Portfolio 1.30%
  • iShares Core Equity Portfolio 2.00%
  • iShares S&P/TSX 60 1.30%
  • Weighted yield (per year) 1.61%

The portfolio's dividend yield stands at 1.61%, with contributions from the Vanguard Growth Portfolio, iShares Core Equity Portfolio, and iShares S&P/TSX 60. While not high, dividends can provide a steady income stream, beneficial for cautious investors seeking income alongside growth. Given the portfolio's focus on growth, the dividend yield is a secondary consideration. However, for those prioritizing income, consider increasing allocations to higher-yielding assets or dividend-focused funds, which can enhance income without significantly altering the risk profile.

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