In this lesson we want to demonstrate the process of creating an equal-weighted Model Portfolio, naming it and then Reallocating client money into the Model.
You may build multiple Model Portfolios within the Advisor Setup area.
To invest a client or a group of clients into a Model Portfolio, use the Classic TWS tab and then manage the rest of the process from the Portfolio tab, where you can see the Reallocate icon. More on this later. But to begin with, open the Advisor Setup window and click on the Models tab.
Let’s just take a moment to explain the construct here, to avoid confusion later on. TWS treats positions as either belonging to a Model Portfolio, or as an Independent position – not associated with a Model.
- This tab lists any Model you may have constructed and assigns its weight as a percentage of Net Liquidation Value, and therefore its Market Value in base currency.
- The top line sums those values for all Model Portfolio holdings, while at the bottom you will see the remaining percent and dollar amount
displayed under the Independent total.
- The sum of Independent plus model Portfolios therefore equals 100%, although the sum may exceed 100% as leverage is commonly used.
Let’s build a Model containing four stocks, weighted at 25% each. I will click the button Create Model
and input the name Model A in the Description field. Click Create.
The Model will appear under my list of Models. Click in the row to activate the buttons to the right. Next click Set Target Allocation.
This will open the Rebalance Model window. You can see to the upper left that we are indeed editing Model A from the Account Selector. Go ahead and add the four stocks by clicking into the cell directly below the TOTAL CASH field.
Next, enter those desired Model weightings for each stock in the Target % column to the far right. Notice that when I add the weightings, the font is white.
When satisfied, click the button beneath, Save Targets to Model. You will notice that the font changes from white to purple, indicating that you have successfully loaded the contracts and weightings to the Model Portfolio.
The Model is now complete, and you can close both the Rebalance Model and Advisor Setup windows by clicking the X in the upper right corner of each.
Investing in the Model – Locate and click the Classic TWS tab to the lower left of TWS. From the tabs across the top of Classic TWS select the Portfolio tab. If you don’t see it, locate the + sign to the right of the tabs and with a right-click choose the Portfolio window icon to open. The two important icons for investing and rebalancing Model Portfolios are located to the upper right of the screen – Reallocate and Rebalance.
If you don’t see them, ensure that, to the upper left of the Portfolio tab, the display selector is set to either ALL accounts, or that you select the single account that you wish to invest into the Model.
The Reallocate window will appear, listing Model Portfolios you may have created, and the NLV percentage they represent alongside the dollar amount of the portfolio on display.
Along side the Model Portfolio, enter a value for either the percentage of NLV you wish to invest across that single client or all clients, or enter a dollar value to invest. With that single input, the software will compute the other for you.
To the right, you will see a checkbox to Transfer Positions From Independent When Available.
Remember that, TWS treats positions as being Independent or else associated with a Model Portfolio.
If a client owns shares in a company that is also represented in a Model, it is possible to have them transferred to the Model Portfolio so as to avoid increasing the holding and risk over weighting the client. Decide whether you want to check this box.
Next click on the red button to Create Reallocation Orders.
A new panel containing Investment Orders will appear at the bottom of the page.
TWS will create cash transfers from relevant client accounts to fund the transactions into the Model Portfolios.
Use the check box to hide or display those cash transfers. You will also see the total number of shares to be bought across the accounts selected.
Next, determine your order type and enter limit prices where necessary.
Note that from the Order type dropdown menu you may also access any of our available IB Algos.
When satisfied with your order, click the blue Transmit All button.
Note that individual orders may be submitted one at a time if you wish.
When all orders have been submitted, you can return to the Classic Portfolio tab to see the portfolio holdings and expand the button next to any of the Model Portfolios to see your holdings.
Building and investing in a Model Portfolio is pretty straightforward.
Remember that you must first create your Model Portfolio within the Advisor Setup area.
And that you must use the Classic TWS interface to make that initial investment in to a Model Portfolio from the portfolio window.
In another video, we will walk you through the Rebalance Window, which enables you to easily bring each position within a Model or just inside a portfolio back to it’s intended weighting.
Disclosure: Interactive Brokers
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