Investment Strategy – Slope Software

The investment & disinvestment strategy in Slope is controlled by the investment strategy and assets allocations. This article describes the purpose and setup of each of these components of investment strategies.

Asset Allocations

Asset Allocations define groups of assets to be used for purchase. Each asset allocation consists of one or more products with a corresponding new purchase model point file.

The model point file used with asset allocations uses the same model point file definition as the in-force asset model points.

Each product in an asset allocation also has an allocation percentage. This can be determined in two different ways based on the allocation model selected.

When the Manual allocation model is used, you will specify an allocation value for each product. This value will be normalized and the resulting percentage allocation to each product will be displayed on the screen.

When the Auto allocation mode is selected, no allocation fields will be displayed. The distribution of purchase/sales values to each product will instead be determined by the underlying allocation of model points that exists across all products. Thus, changes to the underlying new purchase model point files will automatically get propagated up to the asset allocation in total.

An asset allocation must contain at least one product, and each product in an asset allocation must have a model point file with at least one model point.

Investment Strategies

Investment strategies are defined using investment Steps, Rules, and Allocations. These can be combined to form complex investment reinvestment and disinvestment rules that are processed in the order you define.

Investment Constraints

Constraints provide a way for you to limit buying and selling in order to keep your investment portfolio within certain limitations that you specify.

Asset Grouping Variable - This is a Product variable on the asset products that you want to apply constraints to. The value in this variable will be compared against the Asset Grouping Value to determine if the constraint applies to the particular asset model point or not.
Asset Grouping Value - This is a string value to be compared against the grouping variable. If the grouping variable value is equal to the Asset Grouping Value specified here, then the constraint will be applied. If it does not match, or the Asset Grouping Variable does not exist on the asset, then the constraint will not be applied.
Lower Limit - Specifies a lower limit as a percentage of the total portfolio. For example, putting 5 in this box will tell SLOPE that assets that meet the selection criteria for this constraint must make up at least 5% of the total asset portfolio, based on a market value basis.
Lower Limit - Specifies an upper limit as a percentage of the total portfolio. For example, putting 25 in this box will tell SLOPE that assets that meet the selection criteria for this constraint must make up no more than 25% of the total asset portfolio, based on a market value basis.

You can specify either a lower limit, an upper limit or both when creating constraints.

You can add multiple constraints to an investment strategy, but SLOPE will not always be able to verify the consistency of your constraints against the data to be run, so be careful that you do not create constraints that would conflict with each other or unexpected investment behavior may occur.

Investment Strategy Step

An investment strategy step defines a set of one or more rules that will be applied to a specific purchase or sale amount from the Portfolio. Each investment step will take, as input, the value from a Portfolio variable to use as the starting amount of the investment step. This amount will then be applied to each rule in the step, in order from top to bottom until the remaining amount is 0.

In the example below, the investment step takes in a value from the 'Assets to Sell' portfolio value and applies a pro-rate sale rule using that amount.

Each investment strategy can have multiple steps that are applied using different Portfolio variables as inputs. Thus, it is possible to buy multiple buying and selling steps that each operates using independent buy/sell rules, asset allocations, and products to be applied. However, each step within an investment strategy must have a unique name and also must use a unique Portfolio variable as its starting amount. It is not possible to have the same portfolio variable used for multiple different steps.

Investment Rules

Investment rules define the specific logic for how buying and selling activity will take place for the amount specified. Additional information for each type of rule that is supported can be found in the linked articles below. The types of rules available are:

Projection Inputs

Investment strategies are an optional input on projections. If you want to include asset purchase/sale activity, then you may select one or more investment strategies to be included in a projection. Investment strategies are added by editing the portfolio details on a projection or projection template and selecting the strategies to apply.

If multiple investment strategies are selected, they will be processed in the order displayed on this screen. You can drag each strategy up/down to re-order them as appropriate. SLOPE will perform validations across the investment strategies prior to running to ensure there are not any conflicts in strategies. In particular, it is not possible to include two different investment strategies that both use the same starting value for any given step.