I have created my strategy that each week it reconstitutes the top stocks. On most weeks, 1 stock is sold and the others carry over. My sell rule is set to “sell=1”. It appears however that this will sell all the stocks, then buy them back, which gives me a high annualized turnover - when it reality I would just hold the stocks that still meet the buy rules. Is there a better way to create a sell rule that won’t give me such a high turnover? (I am new so still learning)
The setting “Allow Immediate Buyback” on the Rebalance tab in combination with a Sell rule of True (or 1) effectively does sell everything and buy it back. However, the immediate buyback is NOT counted for turnover or transaction costs – the system behaves as though the shares had not been sold. There are a few ways to prove this but one is just to look at turnover for two different sims with those same two settings – if it was really turning over everything every period, then the turnover percentage would be the max and the same for every sim.
Without the Allow Immediate Buyback, anything that was sold would be excluded from consideration for buying that period. Allow Immediate Buyback + Sell True does mean that all positions are rebalanced every rebalance period even if they don’t meet the rebalance threshold, which could increase turnover. For example, a position that increased in value more than the portfolio average over the period would be larger than the specified target position size, and so during rebalance some shares would be sold to bring it back to the target. But only those shares would count towards turnover, not the rest of the position that continued to be held for the following period.
The classic way to decrease turnover is to have a more limited sell rule. Only sell if rank position is greater than X.
Thank you for your reply.
I think its the rebalancing each week that is causing the high turnover number. In my real money portfolio I don’t reblance each week. Is there a way to replicate this behaviour in the strategy settings.
yes, you can set it to rebalance every four weeks, or 13 weeks in the settings.