A S&P-500 Optimised Portfolio refers to optimizing a portfolio that contains only S&P-500 index constituents. Portfolio optimization is a process that aims to find the best allocation to assets based on various factors and constraints, such as risk tolerance and investment goals.
S&P-500 index represents the 500 largest companies by market capitalization, listed on the Stock Exchanges of United States. This is commonly considered as a list of companies with high credit worthiness and therefore safe to invest in.
The following screenshot shows the result of a S&P-500 optimised portfolio, where the grey line represents S&P-500, which is constantly rebalanced from time to time. The green line represents performance if funds were equally invested in each of the 500 constituent stocks. The orange line represents performance if an investor allocated to only 9 of the 500 stocks as per the Portfolio Optimiser’s result.
As you can see from the above chart, Portfolio Optimisation improves returns while reducing volatility. It does so by not allocating to stocks that are underperforming and by allocating to a basket of stocks with adequate diversification.
Spotalpha’s Portfolio Optimiser has more than 100 pre-built portfolios and investment themes. This allows subscribers to quickly screen through them to identify the best portfolios that meet their risk-return requirements.