Risk Analysis of Portfolio – 2009 1Q

Last week, I presented an update on the quarterly performance of my overall portfolio (this includes my index funds, opportunity portfolio, and dividend portfolio). Here I am discussing the quarterly risk analysis. My objective here to make sure I am continuing to following my risk management process.

  1. Maintain pre-determined asset class allocation;
  2. Maintain pre-determined diversification (any sector should not exceed 10%); and
  3. Dividends from a single stock should not exceed 5% of total dividends.

My dividend portfolio holdings can be referenced in “My Holding” menu at top of this page.

Maintaining Asset Allocation

Chart 1 shows the asset class allocation along with my maximum target limits. In general, I am continuing to meet (or much closer) to my pre-defined target levels. During this quarter, I initiated my positions in emerging markets through VWO and EPI. I am still tad lower than my maximum limit.

Asset Class Allocation (1Q2009)

Asset Class Allocation (1Q2009)

Maintaining Diversification

For industry sectors, I have a pre-defined maximum limit of 10% for each sector. The chart shows that I higher exposure (relative to my limit) in financial derivates, energy utility, and consumer sector.

  • Financial derivatives is a sector including dividend CEFs and REITs and hence it had I percentage. Since this includes two sectors, I am comfortable with this exposure.
  • The energy utility sector is well above my limit. This is primarily due to the fewer drops in its values. I am comfortable in this allocation based on my actual capital allocation.
  • The consumer sector allocation increased significantly because of my recent purchase of PG, UL, and PEP. I took the opportunity of lower valuations and initiated position within the same quarter. This resulted in higher allocation. My future purchases will be limited in this sector.
Diversificaton 1Q2009

Diversificaton 1Q2009

For morningstar style classification, I do not have any pre-defined allocation limits. Among all the three portfolios, dividend portfolio is the largest portfolio, and hence, my allocation gets dictated by dividend portfolio. The chart shows that my portfolio is concentrated around large cap stocks (more so on value and growth). Intuitively that seems to be correct because majority of the dividend-growth stocks are stable and mature companies. I will have add mid cap stocks. I will be looking into this.

Criteria of Maximum Dividend per Stock

My objective here is to make sure that dividends from any given company do not exceed 5% limit. This limit allows me to reduce the impact of dividend cuts on passive cash flow. The chart shows that JUN (~6%), DUK (~6%), HCP (~6%), O (~8%), AOD (~18%) exceeds my pre-defined limit. I will not be making any changes any of the individual positions because I do not expect to see dividend cuts in these particular stocks. In addition, I will not be making any future purchases. Therefore, my allocation will automatically come down.

Maximum Dividend per Stock (1Q2009)

Maximum Dividend per Stock (1Q2009)

The quarterly update shows what action I took during Q109.  I hope with this approach to risk-based allocation, I will reduce my risk to dividend cash flow and continue to maintain potential for capital appreciation.

3 Responses to “Risk Analysis of Portfolio – 2009 1Q”

  1. Jae Jun says:

    Those are some neat looking graphs. I wish I covered my portfolio in detail like that lol

    Jae Jun’s last blog post..Is “Buy and Hold” Dead?

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