So I went ahead and checked. In case someone was wondering the same: YES, you need to have yadm track your files directly for the alt feature to work.
In its current state it walks over all the tracked files, via git ls-files which does not list the files inside submodules.

To effectively list all the files one would need to append to the current list of files the ones obtained via git submodule foreach 'git ls-files | sed "s|^|$path/|"''. Then this should work with submodules. The only remaining catch would be that you'd need to the linked files to the submodules respective .gitignore, otherwise it may be messy when updating your config.

@pschmitt Yes, your assessment of the current functionality is correct. I will consider including files from submodules for alternate file processing.

@pschmitt Hi, I want alt-files to be supported in sub-modules as well. Your suggestion (git submodule foreach 'git ls-files | sed "s|^|$path/|"'') seems to do the trick. However, given some previous commits in the history, one goal fo the project seems to be bash-only, hence sed is an external tool and should not be used. Be that as it may...

I am having diffuclties understanding your point about .gitignore in submodules. Can you please elaborate on why not-considering submodule-.gitignore would pose problems? In general I don't see the issue.

It could be an issue if one uses "git add ." in the submodule, because the parent yadm project has created new symlinks. TBH, I don't think this is problematic enough to warrant any more complicated handling of submodules' .gitignore. My stance being; when you git add, you should be careful.

Please explain why the .gitignore file in submodules deserves any consideration by yadm.

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