System, method and computer program product for using a non-price accounting data based index to determine financial objects to purchase or to sell

• US 8,380,604 B2
• Filed: 06/19/2010
• Issued: 02/19/2013
• Est. Priority Date: 06/03/2002
• Status: Expired due to Term

• 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
• Primary Examiner(s): JOHNSON, GREGORY L
• Application Number:
  US12/819,199
• Publication Number:
  US 20100262563A1
• Time in Patent Office: 976 Days
• Field of Search: 705/35, 705/36.R, 705/37
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/12 Accounting

Abstract

A system, method and computer program product creates an index based on accounting based data, as well as a portfolio of financial objects based on the index where the portfolio is weighted according to accounting based data. A passive investment system may be based on indices created from various metrics. The indexes may be built with metrics other than market capitalization weighting, price weighting or equal weighting. Non-financial metrics may also be used to build indexes to create passive investment systems. Additionally, a combination of financial non-market capitalization metrics may be used along with non-financial metrics to create passive investment systems. Once the index is built, it may be used as a basis to purchase securities for a portfolio. Specifically excluded are widely-used capitalization-weighted indexes and price-weighted indexes, in which the price of a security contributes in a substantial way to the calculation of the weight of that security in the index or the portfolio, and equal weighting weighted indexes. Valuation indifferent indexes avoid overexposure to overvalued securities and underexposure to undervalued securities, as compared with conventional capitalization-weighted and price-weighted.

Claims

1. A method of determining financial objects to purchase or to sell by a programmed computer using a non-price accounting data based index (ADBI) comprising:

using, by at least one computer, the non-price accounting data based index (ADBI),

wherein the non-price ADBI was constructed, by at least one computer processor, by at least selecting non-price ADBI constituents by at least one non-price accounting data, and by at least weighting said the non-price ADBI constituents by at least one non-priced accounting data,

isolating, by the at least one computer, outperformance of the non-price ADBI, wherein said isolating;

determining, by at least one computer processor, overlapping financial objects appearing in both a portfolio constructed using the accounting based index (ADBI) and a portfolio constructed using a conventionally weighted index by comparing said portfolios;

wherein said portfolios are stored in at least one storage medium;

wherein said conventionally weighted index comprises an index weighted based on at least one of capitalization, equal weighting, or share price weighting; and

wherein the non-price ADBI comprises selecting and weighting, by the at least one computer processor, based on at least one non-price accounting data based measure and not based on any of capitalization, equal weighting, and share price weighting;

comparing, by the at least one computer processor, weightings of said overlapping financial objects in said ADBI with weightings of said overlapping financial objects in said conventionally weighted index; and

determining, by the least one computer processor, at least one financial object to purchase or to sell based on said comparing.

2. The method of claim 1, wherein said determining comprises at least one of:

determining whether to purchase or to sell, by the at least one computer processor, a long position in at least one overlapping financial object when said comparing indicates said at least one overlapping financial object is over weighted in said non-price ADBI relative to said conventionally weighted index;

or

determining whether to purchase or to sell, by the at least one computer processor, a short position in at least one overlapping financial object when said comparing indicates said at least one overlapping financial object is underweighted in said non-price ADBI relative to said conventionally weighted index.

3. The method of claim 2, wherein said determining whether to purchase or to sell said long or short positions is implemented by using total return swaps.

4. The method of claim 2, wherein said long or short positions are held for at least one year.

5. The method of claim 2, further comprising rebalancing, by the at least one computer processor, the portfolio that was constructed using the ADBI.

6. The method of claim 5, wherein said rebalancing comprises:

at least one of creating, by the at least one computer processor, at least one new long or short position using cash flow from new capital contributions, or altering at least one existing long or short position using cash flow from new capital contributions.

7. The method of claim 2, further comprising using leverage to obtain said long or short positions.

8. The method of claim 1, wherein said comparing comprises:

calculating a difference between said weightings.

9. The method of claim 1, wherein said comparing comprises:

calculating, by the at least one computer processor, a difference between mathematically modified values comprising at least one of arithmetically, or algebraically modified values, of said weightings.

10. The method of claim 9, wherein said mathematically modified values of said weightings comprises taking a square root of each of said weightings.

11. The method of claim 1, wherein said comparing comprises:

calculating, by at least one computer processor, a difference based on tiers of weightings using stratified sampling.

12. The method of claim 1, wherein said financial object comprises:

at least one unit of interest in at least one of;

an asset;

a liability;

a tracking portfolio;

a financial instrument or a security, wherein said financial instrument or said security denotes a debt, an equity interest, or a hybrid;

a derivatives contract, including at least one of;

a future, a forward, a put, a call, an option, a swap, or any other transaction relating to a fluctuation of an underlying asset, notwithstanding the prevailing value of the contract, and notwithstanding whether such contract, for purposes of accounting, is considered an asset or liability;

a fund;

or

an investment entity or account of any kind, including an interest in, or rights relating to at least one of;

a hedge fund, an exchange traded fund (ETF), a fund of funds, a mutual fund, closed end fund, an investment vehicle, or any other pooled or separately managed investments.

13. A system of determining financial objects to purchase or to sell by a programmed computer using a non-price accounting data based index (ADBI) comprising:

at least one memory; and

at least one computer processor coupled to said at least one memory, said at least one computer processor configured to use the non-price accounting data based index (ADBI),

wherein the non-price ADBI was constructed, by at least one computer processor, by at least selecting non-price ADBI constituents by at least one non-price accounting data, and by at least weighting said non-price ADBI constituents by at least one non-price accounting data,

said at least one computer processor configured to isolate outperformance of the non-price ADBI,

wherein said at least one computer processor is configured to determine overlapping financial objects appearing in both a portfolio constructed using the accounting data based index (ADBI) and a portfolio constructed using a conventionally weighted index by comparing said portfolios;

wherein said portfolios are stored in at least one storage medium;

wherein said conventionally weighted index comprises an index weighted based on at least one of capitalization, equal weighting, and/or share price weighting; and

wherein the non- price ADBI comprises selecting and weighting, by the at least one computer processor, based on at least one non-price accounting data based measure and not based on any of capitalization, equal weighting, and share price weighting;

said at least one computer processor configured to compare weightings of said overlapping financial objects in said ADBI with weightings of said overlapping financial objects in said conventionally weighted index; and

said at least one computer processor configured to determine at least one financial object to purchase or to sell based on said comparing.

14. The system of claim 13, wherein said financial object comprises:

at least one unit of interest in at least one of;

an asset;

a liability;

a tracking portfolio;

a financial instrument or a security, wherein said financial instrument or said security denotes a debt, an equity interest, or a hybrid;

a derivatives contract, including at least one of;

a future, a forward, a put, a call, an option, a swap, or any other transaction relating to a fluctuation of an underlying asset, notwithstanding the prevailing value of the contract, and notwithstanding whether such contract, for purposes of accounting, is considered an asset or liability;

a fund;

or

an investment entity or account of any kind, including an interest in, or rights relating to at least one of;

a hedge fund, an exchange traded fund (ETF), a fund of funds, a mutual fund, closed end fund, an investment vehicle, or any other pooled or separately managed investments.

15. A computer program product embodied on at least one non-transitory computer readable medium, wherein said computer program product comprises program logic, which when executed on at least one computer processor performs a method of determining financial objects to purchase or to sell by a programmed computer using a non-price accounting data based index (ADBI) comprising:

using, by at least one computer, the non-price accounting data based index (ADBI),

wherein the non-price ADBI was constructed, by at least one computer processor, by at least selecting non-price ADBI constituents by at least one non-price accounting data, and by at least weighting said non-price ADBI constituents by at least one non-price accounting data,

isolating, by the at least one computer, outperformance of the non-price ADBI, wherein said isolating comprises;

determining, by at least one computer processor, overlapping financial objects appearing in both a portfolio constructed using the accounting data based index (ADBI) and a portfolio constructed using a conventionally weighted index by comparing said portfolios;

wherein said portfolios are stored in at least one storage medium;

wherein said conventionally weighted index comprises an index weighted based on at least one of capitalization, equal weighting, or share price weighting; and

wherein the non-price ADBI comprises selecting and weighting, by the at least one computer processor, based on at least one non-price accounting data based measure and not based on any of capitalization, equal weighting, and share price weighting;

comparing, by the at least one computer processor, weightings of said overlapping financial objects in said ADBI with weightings of said overlapping financial objects in said conventionally weighted index; and

determining, by the at least one computer processor, at least one financial object to purchase or to sell based on said comparing.

16. The computer program product of claim 15, wherein said financial object comprises:

at least one unit of interest in at least one of;

an asset;

a liability;

a tracking portfolio;

a financial instrument or a security, wherein said financial instrument or said security denotes a debt, an equity interest, or a hybrid;

a derivatives contract, including at least one of;

a future, a forward, a put, a call, an option, a swap, or any other transaction relating to a fluctuation of an underlying asset, notwithstanding the prevailing value of the contract, and notwithstanding whether such contract, for purposes of accounting, is considered an asset or liability;

a fund;

or

an investment entity or account of any kind, including an interest in, or rights relating to at least one of;

a hedge fund, an exchange traded fund (ETF), a fund of funds, a mutual fund, closed end fund, an investment vehicle, or any other pooled or separately managed investments.