Source: http://www.google.com/patents/US7792719?dq=%22Meaning-based+advertising+and+document+relevance+determination%22
Timestamp: 2014-03-07 16:51:01
Document Index: 21866585

Matched Legal Cases: ['Application No. 60', 'Application No. 03726210', 'application No. 0222239', 'application No. 0616163', 'Application No. 2006', 'application No. 200580000459']

Patent US7792719 - Valuation indifferent non-capitalization weighted index and portfolio - Google PatentsSearch Images Maps Play YouTube News Gmail Drive More »Sign inAdvanced Patent SearchPatentsA passive investment system based on indices created from various metrics is disclosed. The indexes may be built by selecting and weighting securities by an objective measure of scale such as accounting metrics rather than market capitalization weighting, price weighting or equal weighting. Various financial,...http://www.google.com/patents/US7792719?utm_source=gb-gplus-sharePatent US7792719 - Valuation indifferent non-capitalization weighted index and portfolioAdvanced Patent SearchPublication numberUS7792719 B2Publication typeGrantApplication numberUS 10/961,404Publication dateSep 7, 2010Filing dateOct 12, 2004Priority dateFeb 4, 2004Also published asCA2530764A1, EP1733352A2, EP1733352A4, US20050171884, WO2005076812A2, WO2005076812A3Publication number10961404, 961404, US 7792719 B2, US 7792719B2, US-B2-7792719, US7792719 B2, US7792719B2InventorsRobert D. ArnottOriginal AssigneeResearch Affiliates, LlcExport CitationBiBTeX, EndNote, RefManPatent Citations (114), Non-Patent Citations (364), Referenced by (5), Classifications (10), Legal Events (1) External Links: USPTO, USPTO Assignment, EspacenetValuation indifferent non-capitalization weighted index and portfolioUS 7792719 B2Abstract A passive investment system based on indices created from various metrics is disclosed. The indexes may be built by selecting and weighting securities by an objective measure of scale such as accounting metrics rather than market capitalization weighting, price weighting or equal weighting. Various financial, accounting, and non-financial metrics may be used to build an index. 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.
1. A method of constructing an index of assets (I), the method implemented by at least one analysis host processor, the at least one analysis host processor comprising at least one computer processor, the method comprising:
(a) accessing by the at least one analysis host processor of one or more databases storing and permitting retrieval of data (D) about a plurality of entities (E) and a plurality of corresponding assets (A) each issued by or having been issued by at least one of the plurality of entities (E);
(b) receiving by the at least one analysis host processor at least one objective measure of scale (O) regarding one or more of the plurality of said assets, or one or more of the plurality of said entities (E) associated with said corresponding assets (A);
(c) retrieving by the at least one analysis host processor one or more of said data (D) about said plurality of said entities (E) and said corresponding assets (A);
(d) selecting by the at least one analysis host processor a selection from said plurality of said assets (A) and said entities (E) to comprise a plurality of constituent index assets (IA) comprising the index of assets (I), wherein said selecting comprises:
(i) selecting by the at least one analysis host processor said one or more data (D) to be a quantitative data (Q) reflecting the amount of said at least one objective measure of scale (O) associated with each of said entities, wherein said at least one objective measure of scale (O) is substantially independent of the market prices (P) of any of said assets (A) and is substantially independent of a market capitalization (MC) of any of said entities (E),
wherein said at least one objective measure of scale (O) comprises a measure of size (SZ) of each said entity (E) associated with each said given asset (A), and wherein said measure of the size (SZ) of each said entity (E) corresponding to each said asset (A) comprises at least one of:
a demographic measure of a said entity (E) associated with said asset (A);
a financial metric of a said entity (E) associated with said asset (A);
a metric from information disclosures of a publicly traded entity; or
a metric from information about a said entity (E) associated with said asset (A);
(ii) ranking by the at least one analysis host processor said entities (E) based upon at least one of a said quantitative data (Q) associated with the at least one objective measure of scale (O) of each of said entities (E); and
(iii) selecting by the at least one analysis host processor said selection from said plurality of said assets (A) or said entities (E) to comprise said plurality of constituent index assets (IA) based on said ranking; and
(e) calculating by the at least one analysis host processor proportional weights for the index of assets to be objective measure of scale weights (OW) substantially independent of the market prices (P) of any of said assets (A) and substantially independent of a market capitalization (MC) of any of said entities (E), wherein said calculating comprises:
(i) adding by the at least one analysis host processor the quantitative data (Q) of each of said at least one objective measure of scale (O) for all of said constituent index assets (IA) to yield a sum total quantitative data (SUMQ) for said at least one objective measure of scale (O); and
(ii) determining by the at least one analysis host processor a relative size of the quantitative data (Q) of a said at least one objective measure of scale (O) for each said constituent index asset (IA) as a proportion of said sum total quantitative data (SUMQ) for said at least one objective measure of scale (O) to yield the objective measure of scale weight (OW) of each of the constituent index assets (IA) comprising the index of assets (I),
wherein said at least one objective measure of scale (O) comprises a measure of size (SZ) of each said entity (E) associated with each said given constituent index asset (IA), and wherein said measure of the size (SZ) of each said entity (E) corresponding to each said constituent index asset (IA) comprises at least one of:
a demographic measure of a said entity (E) associated with said constituent index asset (IA);
a financial metric of a said entity (E) associated with said constituent index asset (IA);
a metric from information about a said entity (E) associated with said constituent index asset (IA).
2. The analysis host implemented method according to claim 1, wherein each of said assets comprises at least one of a stock; a commodity; a futures contract; a bond; a municipal bond; a corporate bond; a mutual fund; a hedge fund; a fund of funds; an exchange traded fund (ETF); or a derivative.
3. The analysis host implemented method according to claim 1, wherein each of said assets comprises a stock.
4. The analysis host implemented method according to claim 1, wherein each of said assets comprises a commodity.
5. The analysis host implemented method according to claim 1, wherein each of said assets comprises a futures contract.
6. The analysis host implemented method according to claim 1, wherein each of said assets comprises a bond.
7. The analysis host implemented method according to claim 1, wherein each of said assets comprises a mutual fund.
8. The analysis host implemented method according to claim 1, wherein each of said assets comprises a hedge fund.
9. The analysis host implemented method according to claim 1, wherein each of said assets comprises a fund of funds.
10. The analysis host implemented method according to claim 1, wherein each of said assets comprises an exchange traded fund (ETF).
11. The analysis host implemented method according to claim 1, wherein each of said assets comprises a derivative.
12. The analysis host implemented method according to claim 1, wherein said (e) comprises performing a negative weighting on any of said assets.
13. The analysis host implemented method according to claim 12, wherein said performing said negative weighting comprises at least one of: establishing or measuring performance, for at least one of: any security; a portfolio; a hedge fund; or at least one of: a long or a short position.
14. The analysis host implemented method according to claim 1, wherein said objective measure of scale comprises a measure relating to at least one of an underlying attribute of one of the assets, or the entity associated with the asset.
15. The analysis host implemented method according to claim 1, wherein said entity comprises at least one of: a company; a municipality; a municipality issuing bonds; a country; or an issuer of the asset.
16. The analysis host implemented method according to claim 1, wherein said objective measure of scale comprises at least one of a mathematical transformation of at least one objective measure of scale, or a ratio of any combination of objective measures of scale relating to one or more of said assets and the ratio is not based on any one of: weighting said one or more assets based on market capitalization; equal weighting; or weighting in proportion to the price of said one or more assets.
17. The analysis host implemented method according to claim 16, wherein said ratio of any combination of said objective measures of scale comprises at least one of:
a current ratio,
a debt ratio,
an overhead expense as a percent of sales, or
a debt service burden ratio.
18. The analysis host implemented method according to claim 1, wherein said (e) comprises weighting based on said objective measure of scale, wherein said objective measure of scale comprises an economic indicator.
19. The analysis host implemented method according to claim 1, wherein said objective measure of scale comprises a measure tied to a particular geography associated with the assets.
20. The analysis host implemented method of claim 1, wherein the method comprises constructing a portfolio of assets based upon the index of assets (I).
21. The analysis host implemented method of claim 20, wherein the portfolio of assets comprises at least one of:
a fund;
22. The analysis host implemented method according to claim 20, further comprising:
selecting the portfolio of assets for trading according to the index of assets (I); and
trading via at least one trading host processor one or more of said portfolio of assets based on said selecting or said weighting of the constituent index assets (IA) of the index of assets (I).
23. The analysis host implemented method according to claim 22, wherein said trading comprises: rebalancing the portfolio of assets based on the index of assets (I).
24. The analysis host implemented method according to claim 23, wherein said rebalancing is performed on a periodic basis.
25. The analysis host implemented method according to claim 23, wherein said rebalancing is based upon the constituent index assets (IA) crossing a threshold value.
26. The analysis host implemented method according to claim 22, further comprising: applying one or more rules associated with the index of assets (I).
27. The analysis host implemented method according to claim 1, wherein the method of constructing the index is used for at least one of: investment management; or investment portfolio benchmarking.
28. The analysis host implemented method of claim 1, wherein the method further comprises an enhanced valuation indifferent non-capitalization weighted index investing method, comprising:
constructing a portfolio of assets in a fashion in which at least one of: holdings; performance; or characteristics, are substantially similar to the index of assets (I).
29. The analysis host implemented method according to claim 1, wherein said (a) comprises: gathering data about the plurality of entities using computerized databases.
30. The analysis host implemented method according to claim 1, wherein said objective measure of scale comprises a non-financial metric.
31. The analysis host implemented method according to claim 1, wherein the analysis host implemented method comprises at least one of: a passive investing method; an active investing method; or an enhanced type of active investing method.
32. The analysis host implemented method according to claim 1, wherein said measure of the size (SZ) of each said entity (E) corresponding to each said asset (A) comprises at least one of:
revenue of a said entity (E) associated with said asset (A);
gross revenue of a said entity (E) associated with said asset (A);
profitability of a said entity (E) associated with said asset (A);
sales of a said entity (E) associated with said asset (A);
total sales of a said entity (E) associated with said asset (A);
foreign sales of a said entity (E) associated with said asset (A);
domestic sales of a said entity (E) associated with said asset (A);
net sales of a said entity (E) associated with said asset (A);
gross sales of a said entity (E) associated with said asset (A);
profit margin of a said entity (E) associated with said asset (A);
operating margin of a said entity (E) associated with said asset (A);
retained earnings of a said entity (E) associated with said asset (A);
earnings per share of a said entity (E) associated with said asset (A);
book value of a said entity (E) associated with said asset (A);
book value adjusted for inflation of a said entity (E) associated with said asset (A);
book value adjusted for replacement cost of a said entity (E) associated with said asset (A);
book value adjusted for liquidation value of a said entity (E) associated with said asset (A);
dividends of a said entity (E) associated with said asset (A);
assets of a said entity (E) associated with said asset (A);
tangible assets of a said entity (E) associated with said asset (A);
intangible assets of a said entity (E) associated with said asset (A);
fixed assets of a said entity (E) associated with said asset (A);
property of a said entity (E) associated with said asset (A);
plant of a said entity (E) associated with said asset (A);
equipment of a said entity (E) associated with said asset (A);
goodwill of a said entity (E) associated with said asset (A);
replacement value of assets of a said entity (E) associated with said asset (A);
liquidation value of assets of a said entity (E) associated with said asset (A);
liabilities of a said entity (E) associated with said asset (A);
long term liabilities of a said entity (E) associated with said asset (A);
short term liabilities of a said entity (E) associated with said asset (A);
net worth of a said entity (E) associated with said asset (A);
research and development expense of a said entity (E) associated with said asset (A);
accounts receivable of a said entity (E) associated with said asset (A);
earnings before interest and tax (EBIT) of a said entity (E) associated with said asset (A);
earnings before interest, taxes, dividends, and amortization (EBITDA) of a said entity (E) associated with said asset (A);
accounts payable of a said entity (E) associated with said asset (A);
cost of goods sold (CGS) of a said entity (E) associated with said asset (A);
debt ratio of a said entity (E) associated with said asset (A);
budget of a said entity (E) associated with said asset (A);
capital budget of a said entity (E) associated with said asset (A);
cash budget of a said entity (E) associated with said asset (A);
direct labor budget of a said entity (E) associated with said asset (A);
factory overhead budget of a said entity (E) associated with said asset (A);
operating budget of a said entity (E) associated with said asset (A);
sales budget of a said entity (E) associated with said asset (A);
inventory method of a said entity (E) associated with said asset (A);
type of stock offered of a said entity (E) associated with said asset (A);
liquidity of a said entity (E) associated with said asset (A);
book income of a said entity (E) associated with said asset (A);
tax income of a said entity (E) associated with said asset (A);
capitalization of earnings of a said entity (E) associated with said asset (A);
capitalization of goodwill of a said entity (E) associated with said asset (A);
capitalization of interest of a said entity (E) associated with said asset (A);
capitalization of revenue of a said entity (E) associated with said asset (A);
capital spending of a said entity (E) associated with said asset (A);
cash of a said entity (E) associated with said asset (A);
compensation of a said entity (E) associated with said asset (A);
employee turnover of a said entity (E) associated with said asset (A);
overhead costs of a said entity (E) associated with said asset (A);
credit rating of a said entity (E) associated with said asset (A);
growth rate of a said entity (E) associated with said asset (A);
tax rate of a said entity (E) associated with said asset (A);
liquidation value of entity of a said entity (E) associated with said asset (A);
capitalization of cash of a said entity (E) associated with said asset (A);
cash flow of a said entity (E) associated with said asset (A),
a measure relating to a demographic attribute of a said entity (E) associated with said asset (A);
a non-financial metric of a said entity (E) associated with said asset (A);
a non-market related metric of a said entity (E) associated with said asset (A);
number of employees of a said entity (E) associated with said asset (A);
floor space of a said entity (E) associated with said asset (A); or office space of a said entity (E) associated with said asset (A); and
wherein said measure of the size (SZ) of each said entity (E) corresponding to each said constituent index asset (IA) comprises at least one of:
revenue of a said entity (E) associated with said constituent index asset (IA);
gross revenue of a said entity (E) associated with said constituent index asset (IA);
profitability of a said entity (E) associated with said constituent index asset (IA);
sales of a said entity (E) associated with said constituent index asset (IA);
total sales of a said entity (E) associated with said constituent index asset (IA);
foreign sales of a said entity (E) associated with said constituent index asset (IA);
domestic sales of a said entity (E) associated with said constituent index asset (IA);
net sales of a said entity (E) associated with said constituent index asset (IA);
gross sales of a said entity (E) associated with said constituent index asset (IA);
profit margin of a said entity (E) associated with said constituent index asset (IA);
operating margin of a said entity (E) associated with said constituent index asset (IA);
retained earnings of a said entity (E) associated with said constituent index asset (IA);
earnings per share of a said entity (E) associated with said constituent index asset (IA);
book value of a said entity (E) associated with said constituent index asset (IA);
book value adjusted for inflation of a said entity (E) associated with said constituent index asset (IA);
book value adjusted for replacement cost of a said entity (E) associated with said constituent index asset (IA);
book value adjusted for liquidation value of a said entity (E) associated with said constituent index asset (IA);
dividends of a said entity (E) associated with said constituent index asset (IA);
assets of a said entity (E) associated with said constituent index asset (IA);
tangible assets of a said entity (E) associated with said constituent index asset (IA);
intangible assets of a said entity (E) associated with said constituent index asset (IA);
fixed assets of a said entity (E) associated with said constituent index asset (IA);
property of a said entity (E) associated with said constituent index asset (IA);
plant of a said entity (E) associated with said constituent index asset (IA);
equipment of a said entity (E) associated with said constituent index asset (IA);
goodwill of a said entity (E) associated with said constituent index asset (IA);
replacement value of assets of a said entity (E) associated with said constituent index asset (IA);
liquidation value of assets of a said entity (E) associated with said constituent index asset (IA);
liabilities of a said entity (E) associated with said constituent index asset (IA);
long term liabilities of a said entity (E) associated with said constituent index asset (IA);
short term liabilities of a said entity (E) associated with said constituent index asset (IA);
net worth of a said entity (E) associated with said constituent index asset (IA);
research and development expense of a said entity (E) associated with said constituent index asset (IA);
accounts receivable of a said entity (E) associated with said constituent index asset (IA);
earnings before interest and tax (EBIT) of a said entity (E) associated with said constituent index asset (IA);
earnings before interest, taxes, dividends, and amortization (EBITDA) of a said entity (E) associated with said constituent index asset (IA);
accounts payable of a said entity (E) associated with said constituent index asset (IA);
cost of goods sold (CGS) of a said entity (E) associated with said constituent index asset (IA);
debt ratio of a said entity (E) associated with said constituent index asset (IA);
budget of a said entity (E) associated with said constituent index asset (IA);
capital budget of a said entity (E) associated with said constituent index asset (IA);
cash budget of a said entity (E) associated with said constituent index asset (IA);
direct labor budget of a said entity (E) associated with said constituent index asset (IA);
factory overhead budget of a said entity (E) associated with said constituent index asset (IA);
operating budget of a said entity (E) associated with said constituent index asset (IA);
sales budget of a said entity (E) associated with said constituent index asset (IA);
inventory method of a said entity (E) associated with said constituent index asset (IA);
type of stock offered of a said entity (E) associated with said constituent index asset (IA);
liquidity of a said entity (E) associated with said constituent index asset (IA);
book income of a said entity (E) associated with said constituent index asset (IA);
tax income of a said entity (E) associated with said constituent index asset (IA);
capitalization of earnings of a said entity (E) associated with said constituent index asset (IA);
capitalization of goodwill of a said entity (E) associated with said constituent index asset (IA);
capitalization of interest of a said entity (E) associated with said constituent index asset (IA);
capitalization of revenue of a said entity (E) associated with said constituent index asset (IA);
capital spending of a said entity (E) associated with said constituent index asset (IA);
cash of a said entity (E) associated with said constituent index asset (IA);
compensation of a said entity (E) associated with said constituent index asset (IA);
employee turnover of a said entity (E) associated with said constituent index asset (IA);
overhead costs of a said entity (E) associated with said constituent index asset (IA);
credit rating of a said entity (E) associated with said constituent index asset (IA);
growth rate of a said entity (E) associated with said constituent index asset (IA);
tax rate of a said entity (E) associated with said constituent index asset (IA);
liquidation value of entity of a said entity (E) associated with said constituent index asset (IA);
capitalization of cash of a said entity (E) associated with said constituent index asset (IA);
cash flow of a said entity (E) associated with said constituent index asset (IA),
a measure relating to a demographic attribute of a said entity (E) associated with said constituent index asset (IA);
a non-financial metric of a said entity (E) associated with said constituent index asset (IA);
a non-market related metric of a said entity (E) associated with said constituent index asset (IA);
number of employees of a said entity (E) associated with said constituent index asset (IA);
floor space of a said entity (E) associated with said constituent index asset (IA); or
office space of a said entity (E) associated with said constituent index asset (IA).
33. The analysis host implemented method according to claim 1, wherein at least one of: said measure of the size (SZ) of each said entity (E) corresponding to each said asset (A) comprises a future value of expected cash flow of a said entity (E) associated with said asset (A); or
said measure of the size (SZ) of each said entity (E) corresponding to each said constituent index asset (IA) comprises a future value of expected cash flow of a said entity (E) associated with said constituent index asset (IA).
34. The analysis host implemented method according to claim 1, further comprising: generating a subset of said data to obtain said plurality of said assets (A) and said plurality of said entities (E).
35. The analysis host implemented method according to claim 34, wherein said generating the subset comprises generating a sector.
36. The analysis host implemented method according to claim 34, wherein said generating the subset comprises generating a subcategory of said entities or assets, to obtain said plurality of said entities, or said plurality of said assets.
37. The analysis host implemented method according to claim 34, wherein said generating said subset of said data by the at least one analysis host processor comprises selecting based on at least one of: a metric of liquidity of said assets, or any metric of size of said entities.
38. The analysis host implemented method according to claim 37, wherein said generating said subset of said data by said selecting comprises selecting a subset of said assets or said entities at least one of, before, during, or after said selecting of said (d).
39. The analysis host implemented method according to claim 1, further comprising:
selecting a portion of at least one of said assets or said entities based on any criterion to obtain said plurality of said entities, or said plurality of said assets.
40. The analysis host implemented method according to claim 1, further comprising constructing said index further comprising at least one of:
minimizing trading costs;
minimizing turnover;
minimizing management costs;
avoiding misjudgments in selection;
avoiding following a market bubble;
taking account of classical valuation ratios;
constructing a valuation indifferent index; or
reducing portfolio volatility.
41. The computer-implemented method according to claim 1, further comprising constructing a portfolio based on an index of assets, the method comprising:
f) receiving the index of assets from an index provider, where the index provider previously constructed the index of assets and stored the index of assets on at least one analysis host,
the at least one analysis host comprising at least one processor, and a memory coupled to said at least one processor, wherein said analysis host is configured to:
access one or more databases storing and permitting retrieval of data (D) about a plurality of entities (E) and a plurality of corresponding assets (A) each issued by or having been issued by at least one of the plurality of entities (E);
receive at least one objective measure of scale (O) regarding one or more of the plurality of the assets or one or more of the plurality of the entities (E) associated with the corresponding assets (A);
retrieve one or more of the data (D) about the plurality of the entities (E) and the corresponding assets (A);
generate a subset of the data to obtain the plurality of the assets (A) or the plurality of the entities (E) based on at least one criterion;
select a selection from the plurality of the assets (A) or the entities (E) to comprise a plurality of constituent index assets (IA) comprising the index of assets (I), wherein said select comprises wherein said analysis host is configured to:
select the one or more data (D) to be a quantitative data (Q) reflecting the amount of the at least one objective measure of scale (O) associated with each of the entities, wherein the at least one objective measure of scale (O) is substantially independent of the market prices (P) of any of the assets (A) and is substantially independent of a market capitalization (MC) of any of the entities (E),
wherein the at least one objective measure of scale (O) comprises a measure of size (SZ) of each the entity (E) associated with each the given asset (A), and wherein the measure of the size (SZ) of each the entity (E) corresponding to each the asset (A) comprises at least one of:
a demographic measure of a the entity (E) associated with the asset (A);
a financial metric of a the entity (E) associated with the asset (A);
a metric from information about a the entity (E) associated with the asset (A);
rank the entities (E) based upon at least one of the quantitative data (Q) associated with the at least one objective measure of scale (O) of each of the entities (E); and
select the selection from the plurality of the assets (A) and the entities to comprise the plurality of constituent index assets (IA) based on the ranking; and
calculate proportional weights for the index of assets to be objective measure of scale weights (OW) substantially independent of the market prices (P) of any of the assets (A) and substantially independent of a market capitalization (MC) of any of the entities (E), wherein said calculate comprises wherein said analysis host is configured to:
add the quantitative data (Q) of each of the at least one objective measure of scale (O) for all of the constituent index assets (IA) to yield a sum total quantitative data (SUMQ) for the at least one objective measure of scale (O); and
determine a relative size of the quantitative data (Q) of a the at least one objective measure of scale (O) for each the constituent index asset (IA) as a proportion of the sum total quantitative data (SUMQ) for the at least one objective measure of scale (O) to yield the objective measure of scale weight (OW) of each of the constituent index assets (IA) comprising the index of assets (I),
wherein the at least one objective measure of scale (O) comprises a measure of size (SZ) of each the entity (E) associated with each the given constituent index asset (IA), and wherein the measure of the size (SZ) of each the entity (E) corresponding to each the constituent index asset (IA) comprises at least one of:
a demographic measure of a the entity (E) associated with the constituent index asset (IA);
a financial metric of a the entity (E) associated with the constituent index asset (IA);
a metric from information about a the entity (E) associated with the constituent index asset (IA);
g) purchasing a portfolio of assets by at least one trading host comprising at least one processor and at least one memory coupled to said at least one processor, said portfolio of assets comprising the plurality of constituent assets of the index of assets in proportion to the constituent weights of the index of assets received; and
h) altering said portfolio of assets by said at least one trading host comprising said at least one processor, when the index of assets received from the index provider changes over time, said altering comprising at least one of:
i) purchasing by said at least one trading host any new constituent assets of the index of assets over time;
ii) purchasing by said at least one trading host any additional constituent assets based on changes in the constituent weights of the constituent assets making up the index of assets over time;
iii) selling by said at least one trading host any previous constituent assets no longer components of the index of assets over time; or
iv) selling by said at least one trading host any previous constituent assets necessitated by changes in the calculated weights of the index of assets over time.
42. A system for constructing an index of assets (I), comprising:
at least one analysis host comprising at least one computer processor; and
at least one memory coupled to said at least one processor, wherein said analysis host is configured to:
access by the at least one processor one or more databases storing and permitting retrieval of data (D) about a plurality of entities (E) and a plurality of corresponding assets (A) each issued by or having been issued by at least one of the plurality of entities (E);
receive by the at least one processor at least one objective measure of scale (O) regarding one or more of the plurality of assets (A), or one or more of the plurality of entities (E) associated with said corresponding assets (A);
retrieve by the at least one processor one or more of said data (D) about said plurality of said entities (E) and said corresponding assets (A);
select by the at least one processor a selection from said plurality of said assets (A) or said entities (E) to comprise a plurality of constituent index assets (IA) comprising the index of assets (I), wherein said select comprises wherein said analysis host is configured to:
select by the at least one processor said one or more data (D) to be a quantitative data (Q) reflecting the amount of said at least one objective measure of scale (O) associated with each of said entities, wherein said at least one objective measure of scale (O) is substantially independent of the market prices (P) of any of said assets (A) and is substantially independent of a market capitalization (MC) of any of said entities (E),
rank by the at least one processor said entities (E) based upon at least one of a said quantitative data (Q) associated with the at least one objective measure of scale (O) of each of said entities (E); and
select by the at least one processor said selection from said plurality of said assets (A) or said entities (E) to comprise said plurality of constituent index assets (IA) based on said ranking; and
calculate by the at least one processor proportional weights for the index of assets to be objective measure of scale weights (OW) substantially independent of the market prices (P) of any of said assets (A) and substantially independent of a market capitalization (MC) of any of said entities (E), wherein said calculate comprises wherein said analysis host is configured to:
add by the at least one processor the quantitative data (Q) of each of said at least one objective measure of scale (O) for all of said constituent index assets (IA) to yield a sum total quantitative data (SUMQ) for said at least one objective measure of scale (O); and
determine by the at least one processor a relative size of the quantitative data (Q) of a said at least one objective measure of scale (O) for each said constituent index asset (IA) as a proportion of said sum total quantitative data (SUMQ) for said at least one objective measure of scale (O) to yield the objective measure of scale weight (OW) of each of the constituent index assets (IA) comprising the index of assets (I),
43. The system according to claim 42, wherein said measure of the size (SZ) of each said entity (E) corresponding to each said asset (A) comprises at least one of:
profitability of a said entity (E) associated, with said asset (A);
short term liabilities of a said entity (E) associated with, said asset (A);
earnings before interest and tax (EB IT) of a said entity (E) associated with said asset (A);
floor space of a said entity (E) associated with said asset (A); or
office space of a said entity (E) associated with said asset (A); and
44. The system according to claim 42, wherein at least one of: said measure of the size (SZ) of each said entity (E) corresponding to each said asset (A) comprises a future value of expected cash flow of a said entity (E) associated with said asset (A); or said measure of the size (SZ) of each said entity (E) corresponding to each said constituent index asset (IA) comprises a future value of expected cash flow of a said entity (E) associated with said constituent index asset (IA).
45. A computer-implemented index construction system, comprising:
at least one analysis host comprising at least one processor; and
receive at least one objective measure of scale (O) regarding one or more of the plurality of said assets, or one or more of the plurality of entities (E) associated with said corresponding assets (A);
retrieve one or more of said data (D) about a plurality of said entities (E) and said corresponding assets (A);
select a selection from said plurality of said assets (A) or said entities (E) to comprise a plurality of constituent index assets (IA) comprising the index of assets (I), wherein said select comprises wherein said analysis host is configured to:
select said one or more data (D) to be a quantitative data (Q) reflecting the amount of said at least one objective measure of scale (O) associated with each of said entities, wherein said at least one objective measure of scale (O) is substantially independent of the market prices (P) of any of said assets (A) and is substantially independent of a market capitalization (MC) of any of said entities (E),
rank said entities (E) based upon at least one of a said quantitative data (Q) associated with the at least one objective measure of scale (O) of each of said entities (E); and
select said selection from said plurality of said assets (A) or said entities (E) to comprise said plurality of constituent index assets (IA) based on said ranking; and
calculate proportional weights for the index of assets to be objective measure of scale weights (OW) substantially independent of the market prices (P) of any of said assets (A) and substantially independent of a market capitalization (MC) of any of said entities (E), wherein said calculate comprises wherein said analysis host is configured to:
add the quantitative data (Q) of each of said at least one objective measure of scale (O) for all of said constituent index assets (IA) to yield a sum total quantitative data (SUMQ) for said at least one objective measure of scale (O); and
determine a relative size of the quantitative data (Q) of a said at least one objective measure of scale (O) for each said constituent index asset (IA) as a proportion of said sum total quantitative data (SUMQ) for said at least one objective measure of scale (O) to yield the objective measure of scale weight (OW) of each of the constituent index assets (IA) comprising the index of assets (I),
46. The computer implemented index construction system according to claim 45, further comprising:
at least one trading host comprising at least one processor, and at least one memory coupled to said at least one processor, said at least one trading host configured to:
select a plurality of assets for trading according to the index of assets; and
trade one or more of said plurality of assets based on said select or said calculation of weights of the constituent index assets of the index.
47. A computer-implemented index construction system according to claim 45, wherein said measure of the size (SZ) of each said entity (E) corresponding to each said asset (A) comprises at least one of:
a measure relating to a demographic attribute of a said entity (E) associated with said constituent index asset (IA); l
48. The computer-implemented index construction system according to claim 45, wherein at least one of:
said measure of the size (SZ) of each said entity (E) corresponding to each said asset (A) comprises a future value of expected cash flow of a said entity (E) associated with said asset (A); or
49. The computer-implemented index construction system according to claim 45, wherein each of said assets comprises at least one of a stock; a commodity; a futures contract; a bond; a municipal bond; a corporate bond; a mutual fund; a hedge fund; a fund of funds; an exchange traded fund (ETF); or a derivative.
50. The computer-implemented index construction system according to claim 45, wherein each of said assets comprises a stock.
51. The computer-implemented index construction system according to claim 45, wherein each of said assets comprises a commodity.
52. The computer-implemented index construction system according to claim 45, wherein each of said assets comprises a futures contract.
53. The computer-implemented index construction system according to claim 45, wherein each of said assets comprises a bond.
54. The computer-implemented index construction system according to claim 45, wherein each of said assets comprises a mutual fund.
55. The computer-implemented index construction system according to claim 45, wherein each of said assets comprises a hedge fund.
56. The computer-implemented index construction system according to claim 45, wherein each of said assets comprises a fund of funds.
57. The computer-implemented index construction system according to claim 45, wherein each of said assets comprises an exchange traded fund (ETF).
58. The computer-implemented index construction system according to claim 45, wherein each of said assets comprises a derivative.
59. The computer-implemented index construction system according to claim 45, wherein said calculate comprises wherein said analysis host is configured to perform a negative weighting on any of said assets.
60. The computer-implemented index construction system according to claim 59, wherein said analysis host is configured to perform said negative weighting comprises wherein said analysis host is configured to at least one of: establish or measure performance, for at least one of: any security; a portfolio; a hedge fund; or at least one of: a long or a short position.
61. The computer-implemented index construction system according to claim 45, wherein said objective measure of scale comprises a measure relating to at least one of an underlying attribute of one of the assets, or the entity associated with the asset.
62. The computer-implemented index construction system according to claim 45, wherein said entity comprises at least one of: a company; a municipality; a municipality issuing bonds; a country; or an issuer of the asset.
63. The computer-implemented index construction system according to claim 45, wherein said objective measure of scale comprises at least one of: a mathematical transformation of at least one objective measure of scale, or a ratio of any combination of objective measures of scale relating to said assets or said entities.
64. The computer-implemented index construction system according to claim 63, wherein said ratio of said any combination of said objective measures of scale comprises at least one of:
a overhead expense as a percent of sales, or
65. The computer-implemented index construction system according to claim 45, wherein said calculate comprises wherein said analysis host is configured to weight based on said objective measure of scale; wherein said objective measure of scale comprises an economic indicator.
66. The computer-implemented index construction system according to claim 45, wherein said objective measure of scale comprises a measure tied to a particular geography associated with the assets.
67. The computer-implemented index construction system according to claim 45, further comprising wherein said analysis host is configured to construct a portfolio of assets based upon the index of assets (I).
68. The computer-implemented index construction system of claim 67, wherein the portfolio of assets comprises at least one of:
69. The computer-implemented index construction system according to claim 67, further comprising wherein said analysis host is configured to:
select the portfolio of assets for trading according to the index of assets (I); and
trade via at least one trading host processor one or more of said portfolio of assets based on said selecting or said weighting of the constituent index assets (IA) of the index of assets (I).
70. The computer-implemented index construction system according to claim 69, wherein said analysis host is configured to trade comprises wherein said analysis host is configured to rebalance the portfolio of assets based on the index of assets (I).
71. The computer-implemented index construction system according to claim 70, wherein said analysis host is configured to rebalance on a periodic basis.
72. The computer-implemented index construction system according to claim 70, wherein said analysis host is configured to rebalance based upon the constituent index assets (IA) crossing a threshold value.
73. The computer-implemented index construction system according to claim 69, further comprising wherein said analysis host is configured to:
apply one or more rules associated with the index of assets (I).
74. The computer-implemented index construction system according to claim 45, wherein the index construction system is used for at least one of: investment management; or investment portfolio benchmarking.
75. The computer-implemented index construction system of claim 45, wherein the index construction system further comprises wherein said analysis host is configured to enhance valuation indifferent non-capitalization weighted index investing, comprising wherein said analysis host is configured to:
construct a portfolio of assets in a fashion in which at least one of: holdings; performance; or characteristics, are substantially similar to the index of assets (I).
76. The computer-implemented index construction system according to claim 45, wherein said access comprises wherein said analysis host is configured to: gather data about at least one of the plurality of assets or the plurality of entities using computerized databases.
77. The computer-implemented index construction system according to claim 45, wherein said objective measure of scale comprises a non-financial metric.
78. The computer-implemented index construction system according to claim 45, wherein the system comprises at least one of: a passive investing system; an active investing system; or an enhanced type of active investing system.
79. The computer-implemented index construction system according to claim 45, further comprising wherein said analysis host is configured to:
generate a subset of said data to obtain said plurality of said assets (A) and said plurality of said entities (E).
80. The computer-implemented index construction system according to claim 79, wherein said analysis host is configured to generate the subset comprises wherein said analysis host is configured to generate a sector.
81. The computer-implemented index construction system according to claim 79, wherein said analysis host is configured to generate the subset comprises wherein said analysis host is configured to generate a subcategory.
82. The computer-implemented index construction system according to claim 45, further comprising wherein said analysis host is configured to:
select a portion of at least one of said assets or said entities based on any criterion to obtain said plurality of said entities or said plurality of said assets.
83. The computer-implemented index construction system according to claim 45, further comprising wherein said analysis host is configured to construct said index further comprising wherein said analysis host is configured to at least one of:
minimize trading costs;
minimize turnover;
minimize management costs;
avoid misjudgments in selection;
avoid following a market bubble;
take account of classical valuation ratios;
construct a valuation indifferent index; or
reduce portfolio volatility.
84. The system according to claim 45, wherein said analysis host is configured to select comprises wherein said analysis host is configured to select based on at least one of a liquidity of said assets or any metric of size of said entities.
85. A computer program product embodied on a machine readable storage medium that provides instructions which when executed by at least one analysis host processor, causes said at least one analysis host processor to perform operations comprising a method of constructing an index of assets, the method comprising:
(b) receiving by the at least one analysis host processor at least one objective measure of scale (O) regarding one or more of the plurality of said assets, or one or more of the plurality of entities (E) associated with said corresponding assets (A);
(d) selecting by the at least one analysis host processor a selection from said plurality of said assets (A) or said entities (E) to comprise a plurality of constituent index assets (IA) comprising the index of assets (I), wherein said selecting comprises:
86. The computer program product embodied on a machine readable storage medium of claim 85, the method further comprising:
selecting a plurality of assets for trading according to the index of assets; and
trading one or more of said plurality of assets based on said selecting or said calculating of said objective measure of scale weights of the constituent index assets of the index.
87. The computer program product embodied on a machine readable storage medium according to claim 85, wherein said measure of the size (SZ) of each said entity (E) corresponding to each said asset (A) comprises at least one of:
88. The computer program product embodied on a machine readable storage medium according to claim 85, wherein at least one of:
said measure of the size (SZ) of each said entity (E) corresponding to each said constituent index asset (IA) comprises a future value of expected cash flow of a said entity (E) associated with said constituent index asset (IA). Description
CROSS-REFERENCE TO RELATED APPLICATIONS The present application is a non-provisional application claiming priority to U.S. Provisional Patent Application No. 60/541,733 entitled, �Securities Indexing,� to Arnott, filed Feb. 4, 2004, the contents of which is incorporated herein by reference in its entirety.
This invention pertains generally to securities investing and more specifically to construction and use of passive portfolios and indexes.
Advantages of passive investing include: a low trading cost of maintaining a portfolio that has turnover only when an index is reconstituted, typically once a year; a low management cost of a portfolio that requires no analysis of individual securities; and no chance of the portfolio suffering a loss�relative to the market or market segment the index reflects�because of misjudgments in individual securities selection.
Advantages of using market capitalization weighting as the basis for a passive portfolio include that the index (and therefore a portfolio built on it) remains continually �in balance� as market prices for the included securities change, and that the portfolio performance participates in (i.e., reflects) that of the securities market or market segment included in the index.
SUMMARY OF THE INVENTION An exemplary embodiment of the present invention is directed to a new method, system and computer program product for passive investing that is based on indexes which are built with metrics other than market capitalization weighting, share price weighting or equal weighting. Among these metrics are various financial data of the company issuing securities, including but not limited to book value, sales, revenue, earnings, earnings per share, income, income growth rate, dividends, dividends per share, earnings before interest, tax, depreciation and amortization, etc. In another exemplary embodiment, other nonfinancial and non-market capitalization metrics can be used as the basis for compiling an index, such as, e.g., but not limited to, an index of companies with chief executive officers (CEOs) having graduated from a particular university.
A common element included in an exemplary embodiment of the present invention, which is entirely missing from conventionally available forms of index construction, is that the indexes of the present invention are �valuation-indifferent.� That is, conventional indexes do not take account of classical valuation ratios, which causes the conventional indexes to create a natural tendency to over-weight the over-valued and under-weight the under-valued securities in the conventional indexes and portfolios based on them. While this cause also holds true for equal weighting, we exclude that as an already-extant (and trivial) exception.
The use of these non-market capitalization metrics according to the exemplary embodiment of the present invention, allows the construction of indexes and resulting passive portfolios that better reflect the economic scale and/or long-term growth potential of the individual securities within a market or market segment than do conventional capitalization weighting, share price weighting, or equal weighting. The non-market capitalization metrics according to an exemplary embodiment of the present invention, allow construction of indexes and resulting passive portfolios that offer to an investor who wishes to participate in a market or market segment a choice of passive portfolio alternatives with different risk characteristics. The indexes and portfolios based on them according to the exemplary embodiment of the present invention, also provide these additional advantages while maintaining the conventional benefits of passive investing. In historical testing, these non-market capitalization metrics are found to outperform the conventional capitalization-weighted indexes over extended periods of time, with similar or lower portfolio risk.
Overall, the availability of non-market capitalization indexes, and the passive and enhanced index portfolios based on them, have the potential to reduce investment costs through more widespread use of low-cost passive and enhanced-index investing. The present invention has the potential to improve investment returns versus the securities markets through the use of a securities weighting framework which is not subject to a natural tendency to overemphasize over-valued securities and underemphasize under-valued securities. The present invention also has the potential to reduce portfolio volatility through the use of securities weighting criteria that are less reflective of �irrational exuberance.� An exemplary embodiment of the present invention also has the potential to offer �customized� passive portfolios as each metric may have its own specific performance and risk characteristics.
An exemplary embodiment of the present invention sets forth a system, method, and computer program product for constructing a non-capitalization weighted portfolio of assets. In an exemplary embodiment, the method may include: (a) gathering data about a plurality of assets; (b) selecting a plurality of assets to create the index of assets; and (c) weighting each of the plurality of assets selected in the index based on an objective measure of scale of each of the plurality of assets, wherein the weighting may include: (i) weighting at least one of the plurality of assets; and (ii) weighting other than weighting based on market capitalization, equal weighting, and/or share price weighting.
In one exemplary embodiment, (c) may include weighting each of the plurality of assets, where each of the assets may include a stock; a commodity; a futures contract; a bond; a mutual fund; a hedge fund; a fund of funds; an exchange traded fund (ETF); a derivative; or a negative weighting on any asset.
In one exemplary embodiment, (c) may include weighting each of the plurality of assets, where each of the assets may include a stock.
In one exemplary embodiment, (c) may include weighting each of the plurality of assets, where each of the assets may include a commodity.
In one exemplary embodiment, (c) may include weighting each of the plurality of assets, where each of the assets may include a futures contract.
In one exemplary embodiment, (c) may include weighting each of the plurality of assets, wherein each of the assets may include a bond.
In one exemplary embodiment, (c) may include weighting each of the plurality of assets, where each of the assets may include a mutual fund.
In one exemplary embodiment, (c) may include weighting each of the plurality of assets, where each of the assets may include a hedge fund.
In one exemplary embodiment, (c) may include weighting each of the plurality of assets, where each of the assets may include a fund of flunds.
In one exemplary embodiment, (c) may include weighting each of the plurality of assets, where each of the assets may include an exchange traded fund (ETF).
In one exemplary embodiment, (c) may include weighting each of the plurality of assets, where each of the assets may include a derivative.
In one exemplary embodiment, (c) may include a negative weighting on any asset.
In one exemplary embodiment, the negative weighting may be performed for purposes of establishing, or measuring, performance for any security, a portfolio of assets, a hedge fund, and/or a long/short position.
In one exemplary embodiment, (c) may include weighting based on the objective measure of scale, where the objective measure of scale may include a measure of company size associated with each of the plurality of assets.
In one exemplary embodiment, the measure of company size may include one or more of: gross revenue, sales, income, earnings before interest and tax (EBIT), earnings before interest, taxes, depreciation and amortization (EBITDA), number of employees, book value, assets, liabilities, and/or net worth.
In one exemplary embodiment, (c) may include weighting based on the objective measure of scale, where the objective measure of scale includes a measure relating to an underlying asset itself.
In one exemplary embodiment, the asset may include a municipality, a municipality issuing bonds, or a commodity.
In one exemplary embodiment, the objective measure of scale associated with the asset may include one or more of: revenue, profitability, sales, total sales, foreign sales, domestic sales, net sales, gross sales, profit margin, operating margin, retained earnings, earnings per share, book value, book value adjusted for inflation, book value adjusted for replacement cost, book value adjusted for liquidation value, dividends, assets, tangible assets, intangible assets, fixed assets, property, plant, equipment, goodwill, replacement value of assets, liquidation value of assets, liabilities, long term liabilities, short term liabilities, net worth, research and development expense, accounts receivable, earnings before interest, taxes, dividends, and amortization (EBITDA), accounts payable, cost of goods sold (CGS), debt ratio, budget, capital budget, cash budget, direct labor budget, factory overhead budget, operating budget, sales budget, inventory method, type of stock offered, liquidity, book income, tax income, capitalization of earnings, capitalization of goodwill, capitalization of interest, capitalization of revenue, capital spending, cash, compensation, employee turnover, overhead costs, credit rating, growth rate, tax rate, liquidation value of company, capitalization of cash, capitalization of earnings, capitalization of revenue, cash flow, and/or future value of expected cash flow.
In one exemplary embodiment, (c) may include weighting each of the assets in the index based on the objective measure of scale, where the objective measure may include a ratio of any combination of the objective measures of scale of the asset other than ratios based on weighting the assets based on market capitalization, equal weighting, or share-price weighting.
In one exemplary embodiment, the ratio of any combination of the objective measures of scale may include one or more of: current ratio, debt ratio, overhead expense as a percent of sales, and/or debt service burden ratio.
In one exemplary embodiment, the objective measure of scale may include a demographic measure of the asset.
In one exemplary embodiment, the demographic measure of scale may include one or more of: employees, floor space, office space, location, and/or other demographics of an asset.
In one exemplary embodiment, the measure of company size may include one or more demographic measure of the asset.
In one exemplary embodiment, the demographic measure of the asset may include one or more of a non-financial metric, a non-market related metric, a number of employees, floor space, office space, and/or other demographics of the asset.
In one exemplary embodiment, (c) may include weighting based on the objective measure of scale, where the objective measure of scale may include a geographic metric.
In one exemplary embodiment, the geographic metric may include a geographic metric other than gross domestic product (GDP) weighting.
In one exemplary embodiment, the method may include a passive investing method that may include: constructing the portfolio of assets according to the index.
In one exemplary embodiment, the portfolio of assets may include one or more of: a fund; a mutual fund; a fund of funds; an asset account; an exchange traded fund (ETF); a separate account, a pooled trust; and/or a limited partnership.
In one exemplary embodiment, the method may further include: selecting a plurality of assets for trading according to the index; and trading one or more of said plurality of assets based on said weighting of the index.
In one exemplary embodiment, the trading may include: rebalancing the portfolio based on the index.
In one exemplary embodiment, rebalancing may include: rebalancing on a periodic basis.
In one exemplary embodiment, rebalancing may include: rebalancing based on the assets reaching a threshold.
In one exemplary embodiment, the method may further include applying rules associated with the index.
In one exemplary embodiment, the method of constructing the non-market capitalization weighted portfolio may be used for one or more of: investment management, and/or investment portfolio benchmarking.
In one exemplary embodiment, the method may include an enhanced index investing method. The method may include constructing the portfolio of assets in a fashion in which at least one of holdings, performance, or characteristics, are substantially similar to the index.
In one exemplary embodiment, the method may be a computer-implemented method and (a) may include: gathering data using computerized databases.
In one exemplary embodiment, (c) may include weighting based on a non-market capitalization financial metric associated with each of the plurality of assets, and a non-financial metric associated with each of said plurality of assets.
In another exemplary embodiment, a system for constructing a non-capitalization weighted portfolio of assets may include: means for gathering data about a plurality of assets; means for selecting a plurality of assets to create the index of assets; and weighting means for weighting each of said plurality of assets selected in the index based on an objective measure of scale of said each of said plurality of assets, wherein said weighting means may include: means for weighting at least one of said plurality of assets; and means for weighting other than weighting based on at least one of market capitalization, equal weighting, or share price weighting.
In yet another exemplary embodiment, a non-capitalization weighted portfolio of assets construction system, may include: a processor adapted to gather data about a plurality of assets; adapted to select a plurality of assets to create the index of assets; adapted to weight each of the plurality of assets selected in the index based on an objective measure of scale of the each of said plurality of assets; adapted to weight at least one of the plurality of assets; and adapted to weight other than based on at least one of market capitalization, equal weighting, or share price weighting.
In another exemplary embodiment, a machine readable medium that provides instructions which when executed by a computing platform, cause the computing platform to perform operations may include a method of constructing a non-capitalization weighted portfolio of assets, the method may include: (a) gathering data about a plurality of assets; (b) selecting a plurality of assets to create the index of assets; and (c) weighting each of said plurality of assets selected in the index based on an objective measure of scale of said each of said plurality of assets, wherein said weighting comprises: (i) weighting at least one of said plurality of assets; and (ii) weighting other than weighting based on at least one of market capitalization, equal weighting, or share price weighting.
FIG. 2 is a process flow diagram of an index generation process in accordance with an exemplary embodiment of the present invention; and
FIG. 3 is a process flow diagram of an index use process in accordance with an exemplary embodiment of the present invention.
DETAILED DESCRIPTION OF EXEMPLARY EMBODIMENTS OF THE PRESENT INVENTION Various exemplary embodiments of the invention are discussed in detail below including a preferred embodiment. While specific implementations are discussed, it should be understood that this is done for illustration purposes only. A person skilled in the relevant art can recognize that other components and configurations may be used without parting from the spirit and scope of the invention.
FIG. 1 depicts an exemplary deployment diagram of an index generation and use process in accordance with an exemplary embodiment of the present invention. According to the exemplary embodiment, an analyst may use a computer system to generate an index. The analyst may do so by using analysis software to examine data about entities offering different kinds of securities that may be traded by investors. An example of an entity that may be offering securities may be a publicly held company whose shares trade on an exchange. However, the present invention also applies to any entity that may have any type of security that may be traded where information about the entity and/or its security is available (or capable of being made available) for analysis.
In an exemplary embodiment, once an index has been generated by an analyst using the entity date, the index may be used to build investment portfolios. An investor, advisor, manager or broker may then manage the purchased securities as a mutual fund for a plurality of individual and institutional investors. Alternatively, the purchased securities may be managed for one or more investors. In the latter case, securities may be purchased based on the index for inclusion in an individual or an institutional investor's portfolio.
FIG. 2 depicts an exemplary process flow diagram of an index generation process in accordance with an exemplary embodiment of the present invention. In an exemplary embodiment, to generate an index, an analyst using analysis software may access entity data about various entities that have securities that are traded. For example, publicly traded companies must disclose information about certain financial aspects of their operations. This information may be aggregated for a plurality of entities. Market sectors and corresponding indices may then be identified and generated using the aggregate data.
In slightly more detail, an index may be generated by normalizing entity data for a particular non-market capitalization metric. The normalized entity data may be used to generate a weighting function describing the contribution of each entity to a business sector as defined by the metric, in an exemplary embodiment. An index may be generated using the weighting function. Once an index is generated, according to an exemplary embodiment, the index may be used to track the business sector defined by the metric or to create a portfolio of securities offered by the entities whose information was used to generate the index.
For example, in an exemplary embodiment of the invention a method of constructing a non-capitalization weighted portfolio of assets may include, e.g., gathering data about various assets; selecting a group of assets to create the index of assets; and weighting each of the group of assets selected in the index based on an objective measure of scale of each member of the group of assets, where the weighting may include weighting all or a subset of the group of assets, and weighting based on other than market capitalization, equal weighting, or share price weighting.
In one exemplary embodiment, the weighting of each member of the group of assets, may include weighting assets of any of various types. Examples of various types of assets may include, e.g., but not limited to, a stock type; a commodity type; a futures contract type; a bond type; a mutual find type; a hedge fund type; a fund of funds type; an exchange traded fund (ETF) type; and a derivative type assets. The weighting may also include, e.g., but not limited to, a negative weighting on any of the various types of assets.
According to exemplary embodiments of the present invention, the index may be weighted based on an objective measure of scale, where the objective measure of scale may include a measure relating to an underlying asset itself. The asset may include a municipality, a municipality issuing bonds, or a commodity. An objective measure of scale associated with the asset may include any combination of: revenue, profitability, sales, total sales, foreign sales, domestic sales, net sales, gross sales, profit margin, operating margin, retained earnings, earnings per share, book value, book value adjusted for inflation, book value adjusted for replacement cost, book value adjusted for liquidation value, dividends, assets, tangible assets, intangible assets, fixed assets, property, plant, equipment, goodwill, replacement value of assets, liquidation value of assets, liabilities, long term liabilities, short term liabilities, net worth, research and development expense, accounts receivable, earnings before interest, taxes, dividends, and amortization (EBITDA), accounts payable, cost of goods sold (CGS), debt ratio, budget, capital budget, cash budget, direct labor budget, factory overhead budget, operating budget, sales budget, inventory method, type of stock offered, liquidity, book income, tax income, capitalization of earnings, capitalization of goodwill, capitalization of interest, capitalization of revenue, capital spending, cash, compensation, employee turnover, overhead costs, credit rating, growth rate, tax rate, liquidation value of company, capitalization of cash, capitalization of earnings, capitalization of revenue, cash flow, and/or future value of expected cash flow.
Ratios too may be used. In an exemplary embodiment, the weighting of assets in the index based on objective measures of scale, may include a ratio of any combination of the objective measures of scale of the asset other than ratios based on weighting the assets based on market capitalization, equal weighting, or share-price weighting. For example, the ratio of any combination of the objective measures of scale may include, e.g., but not limited to, current ratio, debt ratio, overhead expense as a percent of sales, or debt service burden ratio.
In an exemplary embodiment, the portfolio of assets may include, e.g., but not limited to, one or more of, a fund; a mutual fund; a fund of funds; an asset account; an exchange traded fund (ETF); a separate account, a pooled trust; or a limited partnership.
In an exemplary embodiment, a measure of company size may include one of, or a combination of one or more of gross revenue, sales, income, earnings before interest and tax (EBIT), earnings before interest, taxes, depreciation and amortization (EBITDA), number of employees, book value, assets, liabilities, or net worth.
In one exemplary embodiment, the measure of company size may include a demographic measure of the asset. The demographic measure of the asset may include, e.g., one of, or any combination of one or more of a non-financial metric, a non-market related metric, a number of employees, floor space, office space, or other demographics of the asset.
FIG. 3 depicts an exemplary process flow diagram of an index use process in accordance with an exemplary embodiment of the present invention. An index may be received from an index generation process and may be used to determine the identity and quantity of securities to purchase for a portfolio, according to an exemplary embodiment. The securities may be purchased from an exchange or other market and may be held on account for an investor or group of investors. The index may be updated on, e.g., but not limited to, a periodic basis and may be used as a basis to rebalance the portfolio, according to an exemplary embodiment. According to another exemplary embodiment, the portfolio can be rebalanced when, e.g., a pre-determined threshold is reached. In this way, a portfolio may be created and maintained based on a non-market capitalization index.
Rebalancing can be based on assets reaching a threshold condition or value. For example, but not limited to, rebalancing may occur upon reaching a threshold such as, e.g., �when the portfolio of assets increases in market value by 20%,� or �when the assets on a sub-category within the portfolio exceed 32% of the size of the portfolio,� or �when a U.S. President is elected from a different party than the incumbent,� etc.
The present invention, in an exemplary embodiment may be used the non-market capitalization weighted portfolio may be used for investment management, or investment portfolio benchmarking.
The computer, in an exemplary embodiment, may comprise one or more central processing units (CPUs) or processors, which may be coupled to a bus. The processor may, e.g., access main memory via the bus. The computer may be coupled to an input/output (I/O) subsystem such as, e.g., but not limited to, a network interface card (NIC), or a modem for access to a network. The computer may also be coupled to a secondary memory directly via bus, or via a main memory, for example. Secondary memory may include, e.g., but not limited to, a disk storage unit or other storage medium. Exemplary disk storage units may include, but are not limited to, a magnetic storage device such as, e.g., a hard disk, an optical storage device such as, e.g., a write once read many (WORM) drive, or a compact disc (CD), or a magneto optical device. Another type of secondary memory may include a removable disk storage device, which may be used in conjunction with a removable storage medium, such as, e.g. a CD-ROM, or a floppy diskette. In general, the disk storage unit may store an application program for operating the computer system referred to commonly as an operating system. The disk storage unit may also store documents of a database (not shown). The computer may interact with the I/O subsystems and disk storage unit via bus. The bus may also be coupled to a display for output, and input devices such as, but not limited to, a keyboard and a mouse or other pointing/selection device.
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