System, method and computer program product for selecting and weighting a subset of a universe to create an accounting data based index and portfolio of financial objects

• US 8,374,939 B2
• Filed: 04/01/2010
• Issued: 02/12/2013
• 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:
  US12/752,159
• Publication Number:
  US 20100191628A1
• Time in Patent Office: 1,048 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, executed by at least one processor of at least one data processing system, comprising:

creating, by the at least one processor, an accounting data based index (ADBI) based on at least one accounting data comprising;

selecting, by the at least one processor based on user input, a universe of financial objects,

selecting, by the at least one processor based on user input, a subset of said universe based on said at least one accounting data substantially independent of price to obtain said ADBI; and

weighting, by the at least one processor based on user input, the financial objects in said ADBI according to a measure of scale substantially independent of price of an entity associated with each financial object in said ADBI; and

creating, by the at least one processor, a portfolio of financial objects based on said ADBI.

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

publicly traded stocks;

a sector;

a market;

a market sector;

a growth market sector;

a value market sector;

an industry sector;

a geographic sector;

an international sector;

a sub-industry sector;

a government issue;

a measure of value;

a price-based ratio sector;

a size of an entity;

a market size of an entity;

any measure of size of an entity;

a size of a company;

or

a tax exempt financial object.

3. The method according to claim 1, wherein said accounting data used in weighting as said measure of scale of the entity associated with the financial object, comprises at least one of:

any dividends;

sales;

cash flow;

or

book value.

4. The method according to claim 3, wherein said accounting data are weighted relatively dependent on the geography of the entity associated with said financial object.

5. 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 at least one of 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, a closed end fund, an investment vehicle, or any other pooled or separately managed investments.

6. The method of claim 1, wherein said measure of said scale of the entity comprises a measure of entity size comprising at least one of:

a financial ratio of an entity;

a ratio of accounting data;

a ratio of accounting data per share;

a ratio of a first accounting data to a second accounting data;

a liquidity ratio;

a working capital ratio;

a current ratio;

a quick ratio;

a cash ratio;

an asset turnover ratio;

a receivables turnover ratio;

an average collection period ratio;

an average collection period ratio;

an inventory turnover ratio;

an inventory period ratio;

a leverage ratio;

a debt ratio;

a debt-to-equity ratio;

an interest coverage ratio;

a profitability ratio;

a return on common equity (ROCE) ratio;

profit margin ratio;

an earnings per share (EPS) ratio;

a gross profit margin ratio;

a return on assets ratio;

a return on equity ratio;

or

a payout ratio.

7. A method, executed by at least one processor of at least one data processing system, comprising:

creating, by the at least one processor based on user input, an accounting data based index (ADBI), based on at least one accounting data comprising;

selecting, by the at least one processor based on user input, a universe of financial objects,

selecting, by the at least one processor based on user input, a subset of said financial objects of said universe,

selecting, by the at least one processor based on user input, a plurality of said financial objects of said subset based upon at least one accounting data substantially independent of price to obtain constituent financial objects of said ADBI; and

weighting, by the at least one processor based on user input, said plurality of said financial objects comprising said constituent financial objects of said ADBI based upon at least one measure of scale substantially independent of price of an entity associated with each said constituent financial object of said ADBI.

8. The method according to claim 7, wherein said selecting said subset comprises selecting, by the at least one processor based on user input, said subset to avoid illiquid financial objects.

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

all publicly traded stocks;

a sector;

a market;

a market sector;

a growth market sector;

a value market sector;

an industry sector;

a geographic sector;

an international sector;

a sub-industry sector;

a regional sector;

a developed country sector;

a developing country sector;

a government issue;

a measure of value;

a price-based ratio sector;

a tax exempt financial object;

a size of an entity;

a market size of an entity;

any measure of size of an entity;

or

a size of a company.

10. The method according to claim 7, wherein said selecting said subset comprises selecting, by the at least one processor based on user input, a subset of said universe based upon at least one of:

a sector;

a market;

a market sector;

a growth market sector;

a value market sector;

an industry sector;

a geographic sector;

an international sector;

a sub-industry sector;

a regional sector;

a developed country sector;

a developing country sector;

a government issue;

a measure of value;

a price-based ratio sector;

a tax exempt financial object;

a size of an entity;

a market size of an entity;

any measure of size of an entity;

or

a size of a company.

11. The method according to claim 7, wherein the entity comprises at least one of:

a company;

a sovereign issuing said financial object;

or an entity issuing said financial object.

12. The method according to claim 7, further comprising:

creating, by the at least one processor based on user input, a portfolio of financial objects based on said ADBI.

13. The method according to claim 7, wherein said at least one accounting data comprises at least one of:

inventory of the entity;

revenue of the entity;

sales of the entity;

income of the entity;

book income of the entity;

taxable income of the entity;

earnings growth rate of the entity;

earnings before interest and tax (EBIT) of the entity;

earnings before interest, taxes, depreciation, and amortization (EBITDA) of the entity;

expected earnings of the entity;

retained earnings of the entity;

expected revenue of the entity;

number of employees of the entity;

capital expenditures of the entity;

salaries of the entity;

book value of the entity;

assets of the entity;

fixed assets of the entity;

current assets of the entity;

quality of assets of the entity;

operating assets of the entity;

intangible assets of the entity;

dividends of the entity;

gross dividends of the entity;

expected dividends of the entity;

cash flow of the entity;

expected cash flow of the entity;

liabilities of the entity;

losses of the entity;

long term liabilities of the entity;

short term liabilities of the entity;

liquidity of the entity;

long term debt of the entity;

short term debt of the entity;

bonds of the entity;

corporate bonds of the entity;

net worth of the entity;

shareholder equity of the entity;

goodwill of the entity;

research and development expenditures of the entity;

costs of the entity;

cost of goods sold (COGS) of the entity;

or

research and development costs of the entity.

14. The method according to claim 7, wherein said at least one accounting data comprises at least one of:

a financial ratio of an entity;

a ratio of accounting data;

a ratio of accounting data per share;

a ratio of a first accounting data to a second accounting data;

a liquidity ratio;

a working capital ratio;

a current ratio;

a quick ratio;

a cash ratio;

an asset turnover ratio;

a receivables turnover ratio;

an average collection period ratio;

an inventory turnover ratio;

an inventory period ratio;

a leverage ratio;

a debt ratio;

a debt-to-equity ratio;

an interest coverage ratio;

a profitability ratio;

a return on common equity (ROCE) ratio;

profit margin ratio;

an earnings per share (EPS) ratio;

a gross profit margin ratio;

a return on assets ratio;

a return on equity ratio;

or

a payout ratio.

15. The method of claim 7, 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 at least one of 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 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, an investment vehicle, or any other pooled or separately managed investments.

16. The method according to claim 7, further comprising:

selecting a subset of said universe of financial objects based on at least one of;

a liquidity of the financial objects, or a minimum size of the entity of said financial object.

17. The method according to claim 7, further comprising:

managing, by the at least one processor based on user input, a portfolio based on said ADBI.

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

purchasing, by the at least one processor based on user input, financial objects according to said ADBI, comprising;

purchasing financial objects at least one of;

in said ADBI, added to said ADBI, or having increased in constituent weighting over time in said ADBI; and

selling, by the at least one processor based on user input, financial objects according to said ADBI, comprising;

selling, by the at least one processor based on user input, financial objects at least one of;

not in said ADBI, removed from said ADBI, or having decreased in constituent weighting over time in said ADBI.

19. The method according to claim 7, wherein said selecting said subset comprises selecting, by the at least one processor based on user input, said subset based on any measure of entity size.

20. The method according to claim 19, wherein said selecting said subset comprises selecting, by the at least one processor based on user input, said subset based on a minimum measure of entity size.

21. The method according to claim 7, wherein said selecting said universe comprises selecting a universe based on any measure of said entity size.

22. The method according to claim 20, wherein said selecting said subset comprises selecting, by the at least one processor based on user input, said subset based upon a minimum measure of said entity size.

23. The method according to claim 7, wherein at least one of said selecting said universe or said selecting said subset, comprises:

selecting, by the at least one processor based on user input, based upon a measure of entity size comprising at least one of;

a large cap, a mid cap, or a small cap.

24. The method according to claim 7, further comprising:

selecting, by the at least one processor based on user input, a subset of said ADBI based on a measure of scale of entities in said ADBI.

25. The method according to claim 7, further comprising:

dividing, by the at least one processor based on user input, said ADBI into at least one partition of said ADBI based upon at least one measure of scale of entities of the financial objects in said ADBI.

26. The method according to claim 7, further comprising:

selecting, by the at least one processor based on user input, at least a portion of said ADBI based upon any measure of scale of entities of the financial objects in said ADBI.

27. The method according to claim 7, wherein said universe comprises publicly traded stocks of all entities in a given country'"'"'s stock market.