Mimicking Portfolio Allocation – How It Works in Fincanva

What It Is

Mimicking Portfolio is an allocation method that replicates the performance and characteristics of a chosen benchmark or reference portfolio. The goal is to construct a model or portfolio that behaves similarly to the target index in terms of return, risk, and composition.

What It Does in Fincanva

• Logic: Allocates capital in a way that minimizes the difference between the model’s performance and that of the benchmark

• Simulation Behavior: During each rebalance, weights are adjusted to closely track the benchmark using optimization techniques

• Computation: Solves a quadratic programming problem using a hybrid local search algorithm to match benchmark characteristics as closely as possible

• Benchmark Selection: Users implicitly define the benchmark by choosing the investable universe or target index to mimic

Pros

• Allows tracking of well-known indices or custom benchmarks

• Useful for passive investing or performance comparisons

• Helps build educational strategies to understand index behavior

• Enables customization of benchmark-like strategies with additional controls (e.g. constraints)

Cons

• Computationally intensive during rebalance

• May not perfectly replicate the benchmark, especially if the investable universe differs

• Does not necessarily optimize for alpha or returns

• Requires good data on benchmark constituents and characteristics

Where You Can Use It

• Portfolios: Not available

• Models: Yes

When to Use It

• Best for replicating the performance of an index or ETF

• Useful for passive investment strategies with customized rules

• Suitable when benchmarking custom model strategies against a market standard

• Ideal for educational simulations to understand tracking error and benchmark design

Example
If you want your model to replicate the S&P 500 index but only include a subset of large-cap stocks, the mimicking method will allocate weights across the selected assets to approximate the return and risk profile of the S&P 500.

• Models: Available on Ultimate and Professional plans

• Portfolios: Not available