When building a custom Matrix or FSM model, you may decide that you do not want your universe's Matrix or Fund Score rankings to determine what is bought and sold in the model and instead, use the overlay rules alone to determine what the model buys and sells.
Even though the examples below focus on stock models, these rules can be applied to mutual fund and ETF models as well.
Configuring the Strategy Tab
To do this, select Entire Universe from the Buy Criteria dropdown on the Strategy tab of either a Matrix or FSM model.
When using this feature, you can still use the Target Number of Model Holdings field to set a maximum number of holdings. The example shown above will own a maximum of 10 holdings.
If instead of capping the number of holdings, your goal is to own all stocks in this universe with that meet certain criteria, you can set the Target Number of Model Holdings to 100%, as shown below.
Configuring the Overlay Tab
In the next step, you have three options for adding overlays to run this model- sorting your universe by a data point, filtering based on a minimum or maximum criteria, or a combination of the two.
Sorting the Universe
This option allows you to use a different data point to rank your universe rather than the default Matrix or Fund Score rankings. The model below is designed to own the 10 stocks with the highest dividend yield from the starting universe. Since the Buy Criteria was set to Entire Universe on the Strategy tab, this model will own the 10 highest-yielding stocks at each evaluation period without regard for their Relative Strength rankings.
In order for this model to work, the Only Apply Overlay Rules to Buys box must remain unchecked otherwise the model will buy the 10 highest-yielding names at the beginning of the backtest and never sell any of the holdings.
Be careful not to use too frequent of an evaluation period when building a model like this as this can create a high level of turnover in the model.
Adding a Filter
Rather than sorting your universe based on a certain data point, adding a filter allows you to set a minimum or maximum criteria your model holdings need to meet in order to be held in the model. To add a filter, click Add New Filter, select the data point you would like to use from the dropdown, and enter your desired criteria.
The below model is designed to own all stocks with a technical attribute rating greater than 3.
In order for this model to work, the Only Apply Overlay Rules to Buys box must remain unchecked otherwise the model will buy the stocks rated above 3 at the beginning of the backtest but it will never sell any of the holdings.
Sorting and Filtering
Your last option is to build a model that combines the sorting and filtering functionality. The model below is designed to hold the 10 highest-yielding stocks in the starting universe that are also rated above a 3 in terms of technical attributes.
In order for this model to work, the Only Apply Overlay Rules to Buys box must remain unchecked otherwise the model will buy the stocks that meet your criteria at the beginning of the backtest but it will never sell any of the holdings.