If you intend to use multiple models in conjunction with one another in an allocation, our system allows you to blend them into a single model so you can see how they would have performed together. This can help illustrate whether the models are complementary or if there are other combinations of models that could be more effective for what you are looking to accomplish. Additionally, combining models into a single allocation allows you to set model alerts on the single combined model so you do not have to worry about monitoring each of the underlying models individually.
Where do I go?
To create a custom model, navigate to the Custom Models page and select Create New Model
On the next page, you will be prompted to select the type of model you would like to build. Select Static Allocation and click the Next button.
Configuring your Model
Selecting your Universe
To select the models that will comprise your allocation, click the Add Assets button.
In the pop-up window that appears, use the symbol search to search our entire database by name or symbol or select an option from the dropdown to browse lists of securities. For users looking to blend models, the NDW Guided Models and My Custom Models options will be most relevant.
Although this article focuses on blending models, you can add any other securities into your static allocation model as well.
Use the search bar to further narrow down the list of securities. Check the box next to a security to have it appear in the Staged Tickers list. Click the star icon to save a ticker under the Favorites section of the dropdown menu. Once you have selected your desired holdings, click the Add Tickers button to add them to your model.
If you close out of this window without clicking Add Tickers, your selection will not be saved and you will have to repeat this step.
Setting your Allocation
Once you have compiled your universe, enter your desired allocation in the Weight column. In the below example, the Blue Chip Model and SPX Yield Model each hold 5 underlying stocks, and the the NDX model holds 10 underlying stocks. As a result, the below model will hold approximately 20 stocks (it will hold fewer than 20 if multiple underlying models hold the same stock). Once your allocation is set, click the Next button.
Pay attention to the Data From column as this will determine the maximum length of your backtest. For static allocation models, backtests are restricted to the most recent inception date. In this case, the model will be able to run a backtest from 10/1/2009.
Setting your rebalancing rules
In the next step, you'll determine how often your model will rebalance back to the target weights set in the previous step.
A rebalance will only be triggered if the difference between a holding's current weight and its target weight is greater than the specified drift value. In our example. the target weighting for the NDX model is 50%. Therefore, based on the below rebalance rules, the NDX model's weighting would need to be below 40% or above 60% on the rebalance date to warrant a rebalance. To ensure your model rebalances on each rebalance date, set the Drift setting to 0% as shown below.
Running your backtest
The final step before generating your backtest is setting your backtest parameters. You can select a benchmark from the Popular Benchmarks dropdown or enter any symbol in our database in the Alternative Benchmarks field. Adding an advisory fee allows you to show your combined model net of fees. Once these settings are configured to your liking, click the Create Preview button to generate your backtest.
If you are creating a model of models, only the advisory fee of the top level model will be factored into the performance. Any advisory fees associated with the underlying models will be ignored.
Viewing your combined model
Model Preview
The model preview page shows you how you model stacks up to your chosen benchmark over the backtest period. On this page, you can see annualized returns, portfolio statistics, and annual returns relative to the benchmark for each year of the backtest.
Saved Models
To save your model as a live model, click the Save Model button at the top of the model preview page.
If you have not already done so, assign your model a name and symbol, which can be used throughout the NDW platform once saved, and click Save Model.
Saving a model allows you to see additional performance data and portfolio statistics not shown on the model preview page, set email alerts to track the combined model going forward, and allows you to create custom fact sheets related to that model.
Once a model is saved, it looks and functions just like any existing NDW model, allowing you to easily track, analyze, and manage the model going forward.