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Do You Make Changes to Your Model's Algorithms Once Launched?

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Q:  Do You Make Changes to Your Model's Algorithms Once Launched? 

A: Our Policy on Revisions:

We rarely revise the Buy/Sell Rules, proprietary Ranking Systems, or anything of critical consequence to the fundamental construction of a model. A significant change to the fundamental construction could make obsolete the strategy's prior recorded equity curve and risk statistics. They would no longer be an accurate representation of the strategy's performance.

However, we might make minor, non-fundamental changes that, over time, can have substantive outcomes. ver the years, we have made changes to the average commission charged on ETF trades as brokers have steadily reduced them from competitive pressure, charging as much $49 in the 1990s, to $19 in the early 2000's, to $9.95 in the mid-2000's, and to $4.95 per trade, and finally $0 per trade since October 2019, when brokers dropped commissions. While those commissions didn't amount to much as a percentage of the trade at the time, over periods of decades the difference was substantial. Now commissions are no longer a consideration.

Another example is in each strategy's ETF Universe. ETF issuers regularly introduce new funds while dropping others each year. In the early years, we sometimes had to modify the custom ETF universes for our strategies as ETFs were added and removed by their issuers.

However, since about 2015 the ETFs that we use in our models have had limited changes. That's because we make sure the positions recommended are well-established, have substantial liquidity, substantial assets under management (AUM), and minimal trade spreads. Virtually all of the ETFs used by our strategies have a rating of 5 out of 5 from FactSet for the ease of investing $1 million in a single trade.

Also, our strategy designers keep abreast of new innovations available in systematic investment design and regularly get new ideas for investment factors that they quickly put to the test in the backtesting platform.

When we develop a unique approach or innovative, new technique, we almost always launch a new product around that approach, rather than modify an existing strategy to accommodate the changes.

We have many prototype strategies currently running out of sample behind the scenes to confirm their robustness (sometimes for years), and another large batch of unique ideas are under development. We are always adding new strategies to the site while discontinuing models that have limited popularity.

After we have a core of about eight-ten excellent strategies on the site, we will likely make a few changes unless there is a unique new opportunity and a supply/demand disequilibrium we have not previously foreseen. If you have a recommendation for a model that will have wide appeal, please let us know with a support ticket at https://etfoptimize.com/support.

 

 

 
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