Portfolio Builder

Create an investment strategy navigated by industry leading research and fundamentals data, then back-test and modify as required. When historical performance meets your expectations, invest in the strategy and track its capabilities in your portfolio.

Organize an investment strategy based on rankings and research from top buy-side suppliers and foundations data. Use filters to decide the universe of equities that will compose your strategy and back-test on up to eight years of historical performance. Work in hypothetical mode to modify the strategy until the historical performance meets your requirements, and with the click of a button let the system create the orders to invest in your strategy. * Keep track of your strategy’s performance in your portfolio.

*Investing currently not supported for Advisors.

Using the Tool

Open the Portfolio Builder

  • From Mosaic: Use the New Window dropdown and from the Trade section select Portfolio Builder.
  • From Classic: Use the Trading Tools menu and from the Multi-Contract section select Portfolio Builder.

Click “Create New Strategy” to open and edit Investment Rules in the sidecar populated with sample data based on the last sorting option you selected. The main Portfolio Builder reflects changes made in the sidecar in real time.

Step 1: Creating an Investment Strategy

The two-part window incorporates a popup menu with multiple settings, and a full window that displays the results of your setting decisions as you work. Depending on the structure of the users’ TWS, the popup menu might display to the right or to the left of the main Portfolio Builder window. Use the scroll bar on the far right side of the popup menu to use available settings.

Investment Amount and Long/Short Leverage

Use a speculative investment amount or use your account’s Current Available Funds, and then determine what percentage of that amount you wish to designate toward creating long and short positions. Long positions grant up to 500% of the investment amount, and short up to 300%. Specify restrictions on all or certain stocks. Choose Filter by Industry to display the Industry Filter. Define industries to include in your speculative portfolio, and set limits on how much of each industry to incorporate as long and/ or short positions.

Universe

Specify the universe of equities for the strategy to invest. Filter by index and a “last price” range to begin, and apply the Add Additional filters drop down list to select from countless other filter criteria including Low/ High/ Volume/ History, Dividends, Fundamentals and Short Selling. Organize a Minimum/ Maximum range for all filters, and view the filter and min/ max range graphically in each filter’s histogram chart.

Investment Strategy

Set all stocks in the universe by

  • Market Capitalization: Set Potential investments by Market Cap.
  • Analyst Ratings:Set potential investments by rankings from 11 top buy side providers.
    • Non-subscribed providers, specified by a lock+ icon, need four or more to give you any ranking criteria. (We need four so that users cannot see the certain ranking benchmark from an unsubscribed provider. But will still get ranking information) Users can initiate the Market Data Subscription manager from the “you have no subscription” message.
    • Providers displaying the yellow triangle icon have limited historical data that will not cover the entire backtesting period.
    • Providers showing no associated icon are subscribed.

Select a provider* and use the slider to set the weighting*.

*For information on individual providers and how the “Weights” setting affects how stocks are ranked, see the Ranking Logic and Providers sections below.

*For information on how the position sizing is calculated, see the Ranking Logic section below.

  • Other Criteria: Sort potential investments by ranking from over 60 additional criteria, several of which we select for you to get you started. Use the slider or Weights field for each selection to determine weighting.

Maintain Positions

Specify how you would like the strategy to manage long and short positions that are ranked by providers. Selectors allow you to pick “the top” or “the bottom” and determine the number of equities from the ranking to manage.

Position Sizing

Indicate whether positions should be entrenched with equal size, or size proportionally based on weights and rankings.

Rebalance

Indicate a time interval when you want the system to review how rankings have altered, compare these changes to your latest investments, and propose changes that would bring your investment strategy back into sync with your defined ranking and position management settings. Portfolio Builder will create orders designed to bring these two elements back into sync, but you must manually carry out the orders.

 

 

Backtest Settings

Set the time period over which backtesting results are shown and the index against which performance is charted. Accept to optimize the weight of positions based on the highest gain, lowest variance or highest Sharpe ratio, and the weight of ranking providers.

Each time you make changes to the investment rules they are automatically saved. These strategies are labeled with a large “H.”

Once you invest, your strategy will be marked with a large green “I” and these designations will be very clear in the “Library” of investment
strategies shown in the sidecar when you first open the tool.

Step 2: Invest in your Portfolio

Once the strategy is in place and investment rules are finalized, click invest to initiate the investment wizard.

Enter Investment Amount

Enter an Investment Amount. Remember this is no longer speculative. If you are editing your investment rules, your latest capital invested in the strategy will be shown in the Current Capital field.

Apply Rounding Rules

Intentionally elect to round mixed and round lots. Note that applying rounding rules might affect the final investment amount. You will be notified if the applied rounding rules result in an investment amount that is notably higher than your original amount. For example, an uneven lot of 16 shares rounded up to the closest hundred would cost notably more than the amount originally allocated.

Select Order Type

Next select the order type using the Create Orders using drop down selector. Note that you will not be able to modify the order type or price before submitting orders except on this section of the wizard.

  • Market on Open — submits orders to fill at or close to the next day’s opening price.
  • Market on Close — submits orders to fill at or close to today’s closing price.
  • VWAP — achieves the volume weighted average price (as calculated by Bloomberg).
  • Market on Open — submits orders to fill at or close to the next day’s opening price.Limit @ Bid/Ask (marketable) — buy order placed at the ask, sell placed at the bid
  • Limit @ Bid/Ask (non-marketable) — buy order placed at the bid, sell placed at the ask
  • Market — uses market orders

Review Order Summary

Orders to carry out your portfolio strategy appear in the Orders popup menu. To make changes go back up to the proper section of the wizard. To submit all orders as they appear, click “invest now”. Working orders will be shown in the Orders popup menu and in the Orders tab of the Activity panel.

Once the orders are finalized, you are invested in the strategy. Depending on the Rebalance setting you specified in your strategy, you will be reminded to rebalance your portfolio to re-sync it with your investment plan every interval, and every time you update the investment strategy.

Ranking Logic

For every analyst the user chooses, an analyst score is provided to each stock in the set that remains after all implemented filters have been satisfied, including index membership, closing price range, industry etc. The score is a simple sort, according to the analyst’s rating division (i.e. 1 star 5 star) and market cap (largest market caps sorted higher for buy-rated stocks, lower for sell-rated stocks) which is nested within the division rating. These are then spread across an arbitrary interval of 0 20000 and ranked based on each stock’s average analyst scores. The ranking is replicated at the close of each rebalance period (which is determined by the user).

Let’s see an example using Morningstar and TheStreet as ranking providers. Let’s speculate that five stocks stay after filtering. To estimate the final ranking, firstly we take the ratings of those stocks and assign the value on an arbitrary interval of 0 to 20,000:

Morningstar RatingTheStreet Rating
Stock15 Star (20000)A+ (20000)
Stock22 Star (5000)C- (0)
Stock31 Star (0)B (10000)
Stock43 Star (10000)B (15000)
Stock54 Star (15000)C (5000)

Let’s use the sliders to weight Morningstar at 100% and TheStreet at 40%. In this case, the weighted averages of these stocks would be:

Ranking CalculationOutcome
Stock1(100*20000 + 40*20000) / (100 + 40) = 200001
Stock2(100* 5000 + 40* 0) / (100 + 40) = 35714
Stock3(100* 0 + 40*10000) / (100 + 40) = 28575
Stock4(100*10000 + 40*15000) / (100 + 40) = 114283
Stock5(100*15000 + 40* 5000) / (100 + 40) = 121422

Notice that by using the slide to weight Morningstar at 100% and The Street at 40%, stock 2 comes out with a higher rank than stock 3 despite the fact that TheStreet had ranked stock 3 two steps above stock 2.
In the example above, if you buy the highest ranked two stocks and sell the lowest two ranked stocks, you’ll be buying stocks 1 and 5 and selling stocks 2 and 3. But how do we know much of each we will buy and sell?
If we choose equal sizing, we will obtain the same dollar amount of stock 5 as of stock 1 and sell the same dollar amounts each of stocks 2 and 3. (let’s say buy $100k of stock 1, buy $100k of stock 5, sell $100k of stock 2, sell $100k of stock 3).

If we choose comparable sizing, we’ll buy more of stock 1 than stock 5 since it has a higher ranking, and sell more of stock 3 rather than stock 2 since it has a lower ranking. The exact amount we would buy or sell is comparable to the score and is estimated as:

Stock 1: Ranking value / (ranking value stock 1 + )
ranking value stock 5

Stock 5: Ranking value/ ((ranking value stock 1 +
ranking value stock 5)

Long
Stock 1 20000 / (20000+12142) =
62%
Stock 5 12142 / (20000+12142) =
38%

Short
Stock 2 16429 / (16429+17143) = -49%
Stock 3 -17143 / (16429+17143) = -51%

With the shorts, we use the numbers subtracted from the max score 20000 (e.g., 20000-3571=16439) since that makes it the mirror image of the large estimations. Note that this is “proportional” since rations are preserved, e.g., 20000 is to 12142 as 62% of your money in the stock vs 38% in the 3571 are not that far from each other, and therefore we’ll be investing just about the same amount: 49% in comparison to 51%.