Balanced Portfolio with Low Diversification and High Correlation Amongst U.S. Equity ETFs

Report created on Nov 27, 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 consists of five ETFs, heavily concentrated in U.S. equities, which makes up 98% of the asset allocation. The largest holding is the Schwab U.S. Dividend Equity ETF, making up 40% of the portfolio. This is followed by the Schwab U.S. Large-Cap Growth ETF and the SPDR® Portfolio S&P 500 ETF, each at 20%. The remaining 20% is divided between the Avantis® U.S. Small Cap Value ETF and the JPMorgan Nasdaq Equity Premium Income ETF. Such a concentrated composition indicates a focus on U.S. stock market performance, but it lacks diversification across different asset classes and regions.

Growth Info

Historically, the portfolio has performed well with a compound annual growth rate (CAGR) of 14.47%. This suggests strong past performance, likely driven by the U.S. equity market's growth. However, the max drawdown of -16.02% highlights the potential downside risk. Only 12 days contributed to 90% of the returns, indicating the portfolio's performance is dependent on a few high-return days. Monitoring the market and being prepared for volatility is crucial to maintaining this performance in the future.

Projection Info

A Monte Carlo simulation was conducted, using 1,000 simulations to project future performance. Assuming a hypothetical initial investment, the results showed a 5th percentile return of 144.28% and a median return of 658.36%. The 67th percentile return was 928.23%, with almost all simulations resulting in positive returns. This indicates potential for high future returns, but also highlights the inherent risk. The annualized return across all simulations was 17.18%, suggesting the portfolio could continue to perform well, though it remains subject to market fluctuations.

Asset classes Info

  • Stocks
    98%
  • No data
    2%

The portfolio is heavily weighted in stocks, accounting for over 98% of the total assets. This high concentration in a single asset class increases the portfolio's risk profile, as it is highly exposed to stock market volatility. While stocks can offer high returns, they also come with significant risk, especially in downturns. To mitigate this risk, consider adding other asset classes like bonds or real estate. Diversifying across different asset classes can help stabilize returns and reduce the overall risk of the portfolio.

Sectors Info

  • Technology
    26%
  • Financials
    15%
  • Consumer Discretionary
    12%
  • Health Care
    11%
  • Industrials
    9%
  • Telecommunications
    8%
  • Consumer Staples
    8%
  • Energy
    7%
  • Basic Materials
    2%
  • Utilities
    1%
  • Real Estate
    1%

The sector allocation is heavily tilted towards technology, which makes up over 26% of the portfolio. Financial services and consumer cyclicals also have significant representation. This concentration in a few sectors can increase the portfolio's risk, as it is susceptible to sector-specific downturns. A more balanced sector allocation could offer better protection against market volatility. Consider spreading investments across a wider range of sectors to achieve a more balanced risk-return profile and to capture growth opportunities in other sectors.

Regions Info

  • North America
    99%
  • Europe Developed
    1%

Geographically, the portfolio is overwhelmingly focused on North America, with over 99% of assets allocated to this region. Such concentration limits exposure to international markets, which could offer additional growth opportunities and diversification benefits. While the U.S. market has been strong, diversifying into other regions could help mitigate risks associated with domestic market downturns. Consider exploring investments in developed and emerging markets outside of North America to enhance diversification and potentially tap into new growth areas.

Redundant positions Info

  • JPMorgan Nasdaq Equity Premium Income ETF
    Schwab U.S. Large-Cap Growth ETF
    SPDR® Portfolio S&P 500 ETF
    High correlation

The portfolio shows high correlation among its assets, particularly between the JPMorgan Nasdaq Equity Premium Income ETF, Schwab U.S. Large-Cap Growth ETF, and SPDR® Portfolio S&P 500 ETF. This suggests that these assets tend to move in the same direction, reducing the diversification benefits. High correlation can increase the portfolio's overall risk, as losses in one asset are likely to be mirrored in others. To improve diversification, consider replacing some of these highly correlated assets with others that have lower correlation to each other.

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 optimization chart suggests a need to address high asset correlation before considering further optimization. By reducing overlapping assets that do not contribute to diversification, the portfolio can become more efficient. Moving along the efficient frontier, the investor can achieve a riskier or more conservative portfolio by adjusting the balance between growth and income-focused assets. However, it's essential to first focus on enhancing diversification to maximize the benefits of any optimization efforts and improve the portfolio's risk-return profile.

Dividends Info

  • Avantis® U.S. Small Cap Value ETF 1.50%
  • JPMorgan Nasdaq Equity Premium Income ETF 9.30%
  • Schwab U.S. Dividend Equity ETF 3.30%
  • Schwab U.S. Large-Cap Growth ETF 0.40%
  • SPDR® Portfolio S&P 500 ETF 1.20%
  • Weighted yield (per year) 2.72%

The portfolio's dividend yield stands at 2.72%, with the JPMorgan Nasdaq Equity Premium Income ETF offering the highest yield at 9.3%. This provides a steady income stream, which can be attractive for income-focused investors. However, relying heavily on dividend-paying stocks can limit growth potential. While dividends are beneficial, it's important to balance income with growth opportunities. Consider maintaining a mix of both high-yielding and growth-oriented investments to capture both income and capital appreciation.

Ongoing product costs Info

  • Avantis® U.S. Small Cap Value ETF 0.25%
  • JPMorgan Nasdaq Equity Premium Income ETF 0.35%
  • Schwab U.S. Dividend Equity ETF 0.06%
  • Schwab U.S. Large-Cap Growth ETF 0.04%
  • SPDR® Portfolio S&P 500 ETF 0.02%
  • Weighted costs total (per year) 0.10%

The portfolio's total expense ratio (TER) is relatively low at 0.1%, indicating cost-effective management. The Schwab U.S. Large-Cap Growth ETF and SPDR® Portfolio S&P 500 ETF have particularly low expense ratios, contributing to the overall cost efficiency. Keeping investment costs low is crucial for maximizing net returns. However, it's important to ensure that low costs do not come at the expense of diversification or performance. Regularly review the cost structure to ensure it remains competitive and aligned with the portfolio's investment goals.

What next?

Ready to invest in this portfolio?

Select a broker that fits your needs and watch for low fees to maximize your returns.

Select broker

Create your own report?

Analyze your portfolio

Join our community!

Join Discord

The information provided on this platform is for informational purposes only and should not be considered as financial or investment advice. Insightfolio does not provide investment advice, personalized recommendations, or guidance regarding the purchase, holding, or sale of financial assets. The tools and content are intended for educational purposes only and are not tailored to individual circumstances, financial needs, or objectives.

Insightfolio assumes no liability for the accuracy, completeness, or reliability of the information presented. Users are solely responsible for verifying the information and making independent decisions based on their own research and careful consideration. Use of the platform should not replace consultation with qualified financial professionals.

Investments involve risks. Users should be aware that the value of investments may fluctuate and that past performance is not an indicator of future results. Investment decisions should be based on personal financial goals, risk tolerance, and independent evaluation of relevant information.

Insightfolio does not endorse or guarantee the suitability of any particular financial product, security, or strategy. Any projections, forecasts, or hypothetical scenarios presented on the platform are for illustrative purposes only and are not guarantees of future outcomes.

By accessing the services, information, or content offered by Insightfolio, users acknowledge and agree to these terms of the disclaimer. If you do not agree to these terms, please do not use our platform.

Instrument logos provided by Elbstream.

Help us improve Insightfolio

Your feedback makes a difference! Share your thoughts in our quick survey. Take the survey