Portfolio construction
If an adviser is optimising a portfolio there are a range of constraints or rules they can insert into the portfolio model that will restrict the recommendations provided.
Risk profile
A client/s risk profile sets a constraint at an asset class level. Advisers can create some slack on the optimiser per asset class by creating a divergence from the target. For example, assume the target for cash is 15%. If the user selects an acceptable divergence of 15%, the optimiser can produce a portfolio with a cash allocation between 0-30%.
Constraints
The following constraints can be applied to the portfolio model:
| Constraint | Description |
|---|---|
| Minimum number of investments | This defines the bare minimum number of investments that the portfolio must incorporate. |
| Maximum direct stock exposure | This sets a maximum percentage of the portfolio allocation to direct equities |
| Maximum holding per asset | Sets a maximum position for each individual weighting |
| Maximum investment management fee | Sets a maximum acceptable fee for the total portfolio |
| Maximum transaction costs | Sets a maximum cost of implementing the model portfolio |
| *Maximum Capital Gains Tax | Sets a maximum capital gains tax that is acceptable for implementing the model portfolio. |
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