METHOD OF COMBINING DEMOGRAPHY, MONETARY POLICY METRICS, AND FISCAL POLICY METRICS FOR SECURITY SELECTION, WEIGHTING AND ASSET ALLOCATION

• US 20140046872A1
• Filed: 03/15/2013
• Published: 02/13/2014
• Est. Priority Date: 06/03/2002
• Status: Abandoned Application

• Current Assignee: Research Affiliates LLC (Research Affiliates Global Holdings LLC)
• Original Assignee: Research Affiliates LLC (Research Affiliates Global Holdings LLC)
• Inventors: Arnott, Robert D., Wood, Paul Christopher
• Application Number:
  US13/844,478
• Publication Number:
  US 20140046872A1
• Time in Patent Office: Days
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A system, method and computer program product may combine metrics, and may use metrics to select or weight an index, select or weight a portfolio of financial objects, or be used to perform asset allocation. Financial and non-financial metrics may be used. Metrics based on accounting data, or other non-price metrics such as, e.g., demography, monetary policy metrics, and/or fiscal policy metrics, may be used. A combination of metrics may be used. Indexes may be built with combinations of metrics other than market capitalization weighting, price weighting or equal weighting. Once built, an index may be used as a basis to purchase securities for a portfolio. Specifically excluded are widely-used capitalization-weighted and price-weighted indexes, in which price of a security contributes in a substantial way to calculation of weight of that security in the index or the portfolio, and equal weighting weighted indexes. Indexes may be constructed to minimize volatility.

Claims

1. A method comprising:

receiving a plurality of metrics;

combining said plurality of non-price metrics to obtain combined metric data;

using said combined metric data to at least one of;

select or weight constituents of an index based on said combined data;

select or weight a portfolio of financial objects based on said combined data;

or

allocate assets based on said combined data.

2. The method according to claim 1, wherein said receiving comprises:

receiving said plurality of metrics, wherein at least one of said metrics comprises a non-price metric.

3. The method according to claim 1, wherein said receiving comprises at least one of:

receiving a demography metric;

receiving a monetary policy metric;

or

receiving a fiscal policy metric.

4. The method according to claim 1, wherein said receiving comprises:

receiving a demography metric;

receiving a monetary policy metric; and

receiving a fiscal policy metric.

5. The method according to claim 1, wherein said combining comprises at least one of:

combining mathematically said metrics;

combining by a mathematical function said plurality of metrics;

combining numerical values of said metrics;

combining by averaging values of said metrics;

combining by a weighting function said plurality of metrics;

or

combining by a weighted average function said plurality of metrics.

6. The method according to claim 1, further comprising:

transforming at least one metric by at least one of;

transforming said at least one metric by a mathematical transformation;

transforming said at least one metric to a power c, wherein 0<

c<

1;

transforming said at least one metric to a positive fractional power;

or

transforming said at least one metric by an absolute value of a fractional power.

7. The method according to claim 1, wherein said metric comprises at least one of:

a non-price metric;

a non-price financial metric;

a non-price nonfinancial metric;

a financial metric;

a nonfinancial metric;

a policy metric;

a demography metric;

a monetary policy metric;

a fiscal policy metric;

or

an economic metric.

8. The method according to claim 1, wherein said combining comprises a combining other than any of market capitalization weighting, price weighting, and equal weighting.

14. The method according to claim 1, further comprising selecting a subset based on a metric comprising at least one of:

a non-price metric;

a non-price financial metric;

a non-price nonfinancial metric;

a financial metric;

a nonfinancial metric;

a policy metric;

a demography metric;

a monetary policy metric;

a fiscal policy metric;

or

an economic metric.

9. A method of constructing a low volatility index comprising:

selecting a geographic subset of a plurality of securities selected from a universe of securities wherein said geographic subset comprises selecting at least one security having a lowest beta from a plurality of securities ranked in order of beta from securities of each geography of said universe;

weighting said geographic subset of securities using a low volatility factor, comprising;

weighting by computing a multiplicative product of a weight of the given geography'"'"'s security and said low volatility factor, and

reweighting or normalizing said weights of said geographic subset of said plurality of securities to make the geographic subset of securities at least one of;

country or region neutral, relative to the weights of said starting universe to form a geographic portfolio (GP) strategy;

selecting a sector subset of a plurality of securities selected from said universe of securities wherein said sector subset comprises selecting at least one security having a lowest beta from a plurality of securities ranked in order of beta from each sector of said universe securities;

weighting said sector subset of securities using a low volatility, comprising;

weighting by computing a multiplicative product of an weight of the given sector security and said low volatility factor, and

reweighting or normalizing said weight of said sector subset of securities to make the sector subset of securities sector neutral relative to the starting universe weight to form a sector portfolio (SP) strategy; and

averaging said geographic portfolio (GP) strategy and said sector portfolio (SP) strategy to obtain final low volatility index weights.

10. The method according to claim 9, wherein said low volatility factor comprises:

k-beta, where k is at least one of;

k greater than zero;

k is between 1 and 2 inclusively, or

k is between 0.5 and 3 inclusively.

11. The method according to claim 9, wherein said low volatility factor comprises at least one of:

k-Beta,

1.5-Beta,

1.2-Beta, or

1-Beta of a given geography'"'"'s security.

12. The method according to claim 9, wherein the method further comprises:

excluding negative and zero low volatility factor values.

13. The method according to claim 9, wherein the factor (K-Beta) of a security of a given geography is greater than zero (0).

15. A method, executed on a data processing system, comprising:

creating, by at least one processor, an non-price index based on non-price metrics comprising;

selecting, by the at least one processor, a universe of financial objects,

selecting, by the at least one processor, a subset of said financial objects of said universe based on at least one of said nonprice metrics, and

weighting, by the at least one processor, said subset of said universe according to at least one of said nonprice metrics to obtain the nonprice index; and

creating, by the at least one processor, a portfolio of financial objects using the nonprice index, including said subset of selected and weighted financial objects.

16. The method according to claim 15, further comprising:

wherein said selecting said subset of said financial objects of said universe comprises;

selecting said subset based on a volatility associated with each of said financial objects; and

wherein said weighting comprises;

weighting said weighted financial objects dependent on said volatility associated with each of said financial objects.

17. The method according to claim 16, wherein said weighting comprises at least one of:

weighting a factor of a given constituent by a product of an index weight factor and one over a variance;

weighting a factor of a given constituent by a product of an index weight factor and one over a standard deviation;

weighting a factor of a given constituent by a product of an index weight factor and one over square root of variance;

weighting a factor of a given constituent by a product of an index weight factor and one over a variance, and computing a square root of the product;

weighting a factor of a given constituent by a product of an index weight factor and one over a beta;

weighting a factor of a given constituent by a product of an index weight factor and one over a beta cutoff;

weighting a factor of a given constituent by a product of an index weight factor and one over a beta cutoff of 0.1;

weighting a factor of a given constituent by a product of an index weight factor and one over a beta cutoff to a ½

power;

weighting a factor of a given constituent by taking a difference between an index weight and a capitalization index weight;

weighting a factor of a given constituent by taking a difference between an index weight and a capitalization index weight, and computing a product of said difference with one over a variance;

weighting a factor of a given constituent by taking a difference between a weighted index weight and a weighted capitalization index weight, and computing a product of said difference with one over a variance;

weighting a factor of a given constituent by taking a difference between a weighted index weight and a weighted capitalization index weight, and computing a product of said difference with one over a variance, and computer a square root of said product;

weighting using variance, wherein variance comprises a historical variance of returns of financial objects;

weighting using mean, wherein mean comprises a historical average of returns of financial objects;

weighting using historical averages over a range of time;

weighting using historical averages over a range of 36-60 months;

weighting using a reciprocal of beta;

weighting using a reciprocal of variance;

weighting using a square root;

weighting using a square root of a reciprocal of variance;

weighting using a power of a metric;

weighting using a positive fractional power of a metric;

weighting using a fractional power of a metric;

or

weighting using a power of an absolute value of a fraction of a metric.

18. The method according to claim 17, wherein said metric comprises at least one of:

a non-price metric;

a non-price financial metric;

a non-price nonfinancial metric;

a financial metric;

a nonfinancial metric;

a policy metric;

a demography metric;

a monetary policy metric;

a fiscal policy metric;

or

an economic metric.