Folio Allocation Report

Stockopedia’s Folio Allocation report offers a snapshot of the diversification and weights of the positions in a folio across sectors and styles versus the market.

Diversification is about managing the risk of being over-exposed to certain sectors at the wrong time. The Allocation Report shows you exactly which sectors you are overweighting versus the market and which stocks are below or above target allocations. It can help you find your blind spots faster.

Lets explore how to use these tools.

Finding the Folio Allocation Report

The Allocation Report can be found as a sub-page on any of your Folios. You can access any of your folios by hovering over Folios in the navigation bar and selecting one (or creating a new one) from the dropdown.

Once you’re in the Folios section, the Allocation Report can be found by clicking the Allocation tab.

Exploring the Report

The Allocation report consists of four key sections:

  • Sector Analysis
  • Style Analysis
  • Sector Weights vs. Market
  • Position Weights vs. Limits

1. Sector Analysis

Sector Analysis is displayed as a pie chart. The chart shows the weighting of the portfolio across the 10 different Economic Sectors in the Stockopedia taxonomy. By clicking an individual section of the pie chart, it will switch view to show the specific folio holdings that are represented in that Economic Sector. The breadth of each pie chart slice represents the size of each holding.

2. Style Analysis

The Allocation tool automatically examines portfolio holdings to make a calculation about the folio’s average ‘style’. The Style Analysis matrix will highlight any obvious bias related to the size of companies in the folio, and their investment type. The folio will be tagged at the relevant point in the grid across size - Small, Mid or Large - and style - Value, Growth or a Blend of both.

3. Sector Weights vs. Market

The Sector Weights table shows the weighting of the sectors in the folio versus the benchmark market average.

By comparing your folio sector exposure to the market you can assess your likely divergence from the average investor's portfolio. Some investors may deliberately overweight certain sectors to take advantage of perceived market moves before they occur.

Of course the further you diverge from the market portfolio the more likely it is that your portfolio may have a period of significant divergent performance. Modern Portfolio Theory has shown that being diversified across different sectors can increase the return received for the risk taken. What this means is that portfolio volatility can be reduced by owning uncorrelated business sectors.

On the Sector Weights chart you can switch views to add or remove the Market Average and Folio weightings by clicking the blue buttons on and off.

4. Position Weights vs. Limits

The Position Weights vs. Limits chart shows the percentage position weights of the individual securities in the Folio versus some limits that you can change by editing your Folio settings.

When a position breaches either the minimum or maximum percentage threshold it may be a signal to rebalance the position.

You can set up your own diversification limits but our maximum and mininimum position 'limits' are set according to research that suggests that the optimal diversification for active stock portfolios is between 5 and 30 stocks depending on portfolio size and confidence.

To edit your maximum and minimum position limits, click edit limits link at the top of the Positions Weights box. This will open the Folio editor, where you can adjust the limits. Click Save Change to exit.