Does the model consider different economic sectors?
The model is run in two ways: once unconstrained and once with sector bands. The output of both model runs groups the companies by their sector. The unconstrained model run is free to select the top 100 names regardless of sectors. This tells us which sectors the model likes or dislikes, based on how many stocks it is picking up from each sector (i.e., sector weight). The second model run is constrained such that the sector weights (number of names in a sector) are at least 50%, and no more than 200%, of the weights in the index. These sector weight constraints are consistent with our portfolio building process.
