PORTFOLIO 2023

To start our 2023 portfolio analysis, first we need to look at QQQ (Invesco QQQ Trust), an exchange-traded fund (ETF) designed to track the performance of the NASDAQ 100 index with low costs and tax efficiency. As a passive ETF, QQQ aims to replicate the performance of the underlying index, rather than outperform it.

If you want to identify the top 20 companies with the highest weight in the NASDAQ 100 using QQQ, you can first use the weight of each company in QQQ, and then choose the 20 companies with the highest weight. The following are the 20 companies with the highest weight in QQQ:

Earnings Per Share

EPS is a carefully examined metric that is often used as a barometer to measure a company's profitability per unit of shareholder ownership. As such, earnings per share are one of the key drivers of stock prices. It is also used as the denominator in the P/E ratio. EPS can be calculated using two different methods: basic and fully diluted.

Using this metric, a simple year-over-year average was used for 20 stocks, selecting the top ten companies with the highest earnings per share growth to participate in the portfolio.

Portfolio Selection

    Markowitz's principle of diversification tells us that investors can reduce the risk of their portfolio simply by holding combinations of instruments that are not perfectly positively correlated with each other. If all assets have a correlation of zero, then they are perfectly uncorrelated. The variance of the portfolio's return is the sum of the squares of all the assets held proportionally multiplied by the variance of the assets' return and their respective covariances, and therefore, the standard deviation of the portfolio is the square root of this variance.

Expected Returns 2023

    As a way to adjust the annual rebalancing, I chose to maximize the Sharpe ratio. This ratio, presented by Sharpe in 1966, is one of the measures used to evaluate the performance of a portfolio and shows that the assets in the portfolio are organized by their return above the risk-free asset of the portfolio, which can also be referred to as excess return.

    As the fund manager, I also consider that the risk-free asset that best served the purposes of the portfolio would be the ten-year US Treasury bonds. Therefore, the yields of these bonds were considered for the portfolio balancing in order to obtain the return of the risk-free asset. Finally, regarding the portfolio management, I made the decision not to engage in short selling and leveraging, thus placing an additional restriction on its performance.

2023

This year, the most efficient point on the curve is the one where, for a risk level of 51.87%, the return is 55.74%. However, given the assumed restrictions, the optimal portfolio also achieves a return of  22.16% for a risk of 25.62%. The optimal portfolio in this case is composed of the following assets and their respective weights: 

Microsoft - 22%

Tesla- 14%

Costco - 64%

Based on these considerations, I will present the year-by-year evaluation of the consequences of this decision in terms of portfolio performance. When we look at the portfolio, it is composed of 60% in the equity portfolio and 40% in Treasury bonds.

Please note that the information provided is for educational and informational purposes only and should not be construed as financial advice. It is important to consult with a licensed financial advisor or professional before making any investment decisions. The use of any information or materials in this context is solely at your own risk.