Performance Drift
When you subscribe to a model in your Mirroring Account, be aware that there’s likely to be a difference between the model manager’s performance and the performance realized in your account. This is because you won’t hold all of the same stocks in the same proportions as each other at all times. We call this divergence in performance, drift.
Estimating drift
When looking at a model, you can get an idea of the level of drift by comparing the average subscription returns to those of the model manager. If they differ greatly there is likely to be a high level of drift.
What causes drift?
A number of factors can cause drift, including
- The manager's compliance with the Trading Rules – For the protection of clients, trades the model manager makes in their own account outside the Covestor trading rules are not matched in Mirroring Accounts.
- Your risk score and exclusions – Your risk score, plus any securities you choose to exclude from mirroring, mean that not all trades executed by the model manager will necessarily be replicated in your account.
- Inability to mirror in exact proportion – Depending on the size of your account relative to the model manager’s, translating each trade the model manager makes into whole lots for you can lead to rounding differences, and so slightly different allocations.
- Small trade exclusion – We don’t put through trades that are unlikely to be cost effective. We therefore do not sell positions smaller than the value of the commission you pay in a Mirroring Account or buy positions if they are not more than 10x the value of the commission.
- Replication time – Prices may change during the time it takes for trades passing through the Covestor systems to be translated and executed for you. Typically this process takes less than two minutes.
- The broker’s availability of stock – The broker may not have the exact amount of stock available to fulfil all orders we send through (this principally affects stock shorts).