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Security Constraints on the Zoe Platform

  • Updated

Our platform allows you to set Security Constraints for specific holdings in client portfolios. These constraints control how the rebalancer treats certain securities—whether to avoid buying, selling, holding, or even analyzing them. This is particularly useful for honoring client preferences.

There are four types of security constraints you can apply:

1. Ignore Position

Use when a client holds a legacy or unmanaged position (e.g., a large single-stock holding) that shouldn’t impact rebalancing logic.

  • What it does: The position is excluded from the rebalancer’s analysis. It won’t affect metrics like tracking error or turnover.
  • What happens with trades: The rebalancer won’t buy or sell the security unless explicitly instructed.
  • When to use: This is the best option when:
    • The position is not in the model portfolio, it works better than Never Sell.
    • The position is significantly larger than the weight assigned by the model. In these situations, Ignore Position is more effective than Never Sell, as it prevents the rest of the portfolio from being distorted to compensate for the large position.
    • Use case example: A client holds a large amount of AAPL that is not part of the assigned model. They don’t want it sold, and they don’t want it to influence how the rest of the portfolio is managed.

2. Never Buy

Use when you want to completely prevent new purchases of a specific security.

  • What it does: It will not allow the purchase of this security, even if it appears in the portfolio model.
  • Use case example: You want to block any new purchases of a stock due to ESG concerns or poor outlook.

3. Never Sell

Use when a client insists on holding a security indefinitely, regardless of model drift or tax implications.

  • What it does: The rebalancer will never sell existing lots of this security under any circumstances.
  • When to use: This constraint works well when:
    • The position is part of the model portfolio, and the client wants to retain it.
    • The position is relatively small (under 10% of the total portfolio). If the position is too large, Never Sell can restrict the rebalancer’s ability to allocate the rest of the portfolio effectively. In that case, Ignore Position may be a better choice.
    • The position is a closed end fund that cannot be sold only once per quarter.
    • Use case example: A client inherited a large stock position they want to keep for sentimental, tax reasons, and the stock belongs to the model assigned.

4. Never Hold

Use when a client does not want any exposure to a particular security at all that is part of the model assigned.

  • What it does: It will recommend immediately selling any lots of the security in the portfolio—even if they are already held.
  • Use case example: A client wishes to avoid exposure to a company for ethical or concentration risk reasons.

How to Apply Constraints

To apply security constraints in the Zoe Wealth platform:

  1. Go to the Account Settings of the specific client account.
  2. Click on the “Security Constraints” section.
  3. Search for the security you want to restrict.
  4. Choose the appropriate constraint:
    • Ignore
    • Never Buy
    • Never Sell
    • Never Hold
  5. Click Save to apply the constraint.
     

Once saved, the rebalancer will automatically respect the constraint during future proposals and trading reviews.

Please reach out to trading@zoefin.com with any questions.