Filter Worksheet
The Optimizer’s Filter Worksheet shortens your workflow by helping you find the portfolios on the efficient frontier that match your criteria. These portfolios then appear as options for charts, constraint analysis, and saving model portfolio sets.
- Choose to base the filter on asset score or portfolio standard deviation from the drop down menu in the top left corner.
- If you select portfolio standard deviation, the filter locates the chosen standard deviations of portfolios on the efficient frontier.
- If you select asset scoring, an additional column will appear to allow you to customize the filter according to one characteristic. (See below for instructions.)
- If you select advanced asset scoring, two additional columns will appear to allow you to customize the filter according to the ratio of two characteristics. (See below for instructions.)
- Pick either the optimal frontier or (if you've post-optimized) the investable frontier by clicking either the View Optimal or View Investable Button just below the chart.
- In the twenty drop down menus, select whether you want the filter to look for the minimum, the maximum, the nearest value, or the exact value.
- Selecting minimum or maximum will show the portfolio that has the minimum or maximum value of whatever criteria you have selected.
- Selecting nearest value will show the numbered portfolio that most closely matches your criteria. Note that the closest portfolio to your filter might be the first or last frontier point.
- Selecting exact value will linearly interpolate the neighboring portfolios to exactly match your criteria, if possible. This can be helpful when you are considering rebalancing probabilities across the frontier, allowing you to compare the appropriate portfolios. If no exact match is found, the filter will show all zero portfolio weights and N/A in the actual and Portfolio Number rows.
- Selecting exact or nearest will show the exact match if possible, or the nearest match otherwise. This is useful because it always produces a portfolio on the efficient frontier.
- Selecting off will disable that particular filter column without overwriting its settings. It can be turned back on later if desired.
- If you select nearest, exact, or exact or nearest, you will need to enter numbers for the filter to match. If you enter "0.04" after selecting portfolio standard deviation and nearest value, the filter will find the portfolio that is closest to having a 4% portfolio standard deviation.
- Review filtered portfolios. The Actual Row shows how near the filtered portfolios are to the number you entered if you chose to look for nearest portfolios. The Portfolio Number Row indicates the portfolio's position along the efficient frontier.
- If there are reference portfolios with the same names as filters, and rebalance scores are available, the rebalance score and drifted rebalance score for the reference portfolios with matching names will be shown in rows beneath the filtered portfolios, below the Score type and Desired value rows.
Asset Scoring
The asset score is the criterion for the filter's selection process. The score is generated by multiplying the coefficients in the Asset Score column by the optimal portfolio weights across the frontier, and summing. This results in a range of portfolio-weighted scores across the frontier, which the filter then searches to match the desired number. The pulldown menu for the Asset Score can populate the column with asset means, yields, expense ratios, benchmark weights, or a custom characteristic. Portfolio-weighted scores corresponding to the selected choice will then be used to find matches to the desired portfolio score. For an example, if you select mean from the Asset Score drop down menu, the assets' means will populate the column. If you then set up a filter for the nearest value and enter "0.07" in the desired row, the filter shows the portfolio with a portfolio mean closest to 7%.
A few considerations for working with means, yields, expense ratios, and benchmark weights.
- These choices will only appear if you have enabled the appropriate options in the Display or Options Menus.
- If you disable one of these in the Display or Options Menu after setting a dependent filter, the filter changes to direct input.
- The asset score coefficients are not live. If you change the data on the Inputs Worksheet, it will not update on the Filters Worksheet unless you change the score type to something else and then come back to the desired score type.
- You can edit the imported information after it populates the column. If you do so, the drop down menu changes to direct input.
Direct input can be used to model the global character of the portfolios and is often used to locate desired stock/bond ratios. For example, if you enter "1" for every equity asset in the Asset Score Column, and then enter "0.2" in the desired row with nearest value selected, the filter will look for the portfolio that has 20% stocks.
The advanced version of the asset score permits assigning both numerator and denominator coefficients to each asset and calculating the ratio as the score. One way to use this ratio is to assign a numerator of 1 for each equity asset and a denominator of 1 for everything that you want to include as either a stock or a bond, leaving other asset classes in the case out of the calculation. Then the filter can find the portfolios nearest to various stock/bond ratios. For instance, "0.6" would indicate a 60/40 portfolio. (In this scenario, any alternative assets would be given a score of zero to be excluded from the ratio.) When the asset score curve is non-monotone, in other words it goes up and back down again, the filter will select the lower risk portfolio of the two possibilities closest to that score.
The Robot, a separately licensed module which automatically runs estimations and optimizations, uses the Filter to help match the appropriate portfolio on the frontier for rebalance statistics. Information about the Robot appears in the Start Menu--All Programs--NFA Asset Allocation System--Documentation folder.
The Portfolio Score Chart graphs filtered portfolios along the efficient frontier according to their asset scores.