Using accounting data based indexing to create a portfolio of assets

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.

Description

CROSS-REFERENCE TO RELATED APPLICATION

The present application claims the benefit of U.S. Patent Application No. 60/751,212, Confirmation No. 7679, filed Dec. 19, 2005 previously entitled “Using a Fundamental Index to Create a Portfolio of Assets,” entitled “Using Accounting Data Based Indexing to Create a Portfolio of Assets” to Robert D. Arnott, of common assignee to the present invention, the contents of which are incorporated herein by reference in their entirety.

The present application also claims the benefit of and is also a continuation-in-part of U.S. patent application Ser. No. 11/196,509, filed Aug. 4, 2005 dividend yields, 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 financial objects in the index based on objective measures of scale may include a ratio of any combination of the objective measures of scale of the financial object other than ratios based on weighting the financial objects 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 financial objects 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; a limited partnership or other legal entity, fund or account.

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, net worth, cash flow or dividends.

In one exemplary embodiment, the measure of company size may include a demographic measure of the financial object. The demographic measure of the financial object 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 financial object.

In an exemplary embodiment, weighting may be based on the objective measure of scale, where the measure may include a geographic metric. The geographic metric in an exemplary embodiment may include a geographic metric other than gross domestic product (GDP) weighting.

FIG. 3 depicts an exemplary process flow diagram 300 of an index use process in accordance with an exemplary embodiment of the present invention. The process starts at block 302. An index 310 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 in block 304, according to an exemplary embodiment. The securities may be purchased, in block 306, from an exchange 314 or other market and may be held on account fur an investor or group of investors in trading accounts 308. The index 310 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 financial objects 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 financial objects increases in market value by 20%,’ or ‘when the financial objects 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. Rebalancing may take place periodically, e.g., quarterly, or annually.

The present invention, in an exemplary embodiment, may be used for investment management, or investment portfolio benchmarking.

Another exemplary embodiment of the present invention may include an Accounting Data Based Index (ADBI) such as, e.g., but not limited to, a FUNDAMENTAL INDEX™ and Index Fund or Funds.

This exemplary embodiment may utilize a new series of accounting data based stock market indices in which the index weightings may be determined by company accounting data such as, e.g., but not limited to, the relative size of a company's profits, or its pre-exceptional profits, or sales, or return on investment or any accounting data based accounting item, or ratio, may help to address some of the issues raised above. An index that is weighted based on company accounting data, rather than the share price, or market capitalization or equal weighting, may have a stabilizing element within it that can help to remove excess volatility generated by indices constructed on the basis of price or market capitalization alone. Over the medium to longer term, such accounting data based indices have the potential to outperform price or market capitalization-based indices, and may do so with less volatility.

The exemplary inventive method may create a new class of stock market indices and index funds that may be implemented on, e.g., but not limited to, a computing device or a processor, or as a computer software or hardware, or as an algorithm. This new class of stock market indices may base its weightings on the accounting data of the companies that make up that index. One possible version of an accounting data based stock market index may be an index that is based on the relative size of a sample of the companies' pre-exceptional profits. If the chosen sample of companies was determined to be one hundred and the accounting data based criteria that the index manager decided to use was to be ‘largest pre-exceptional profits,’ then the index may contain, e.g., the one hundred largest companies as defined by the size of their pre-exceptional profits. As an example, if the total pre-exceptional profits of the largest one hundred companies, as measured by their pre-exceptional profits, was 100 dollars, pound, or other currency, in a defined time period (such as a quarter or year) and in the same time period the pre-exceptional profits of theoretical company ‘A’ were $2, then theoretical company A would be allocated a 2% weighting in the accounting data based index, in an exemplary embodiment. If theoretical company B had pre-exceptional profits of $1.5 in over the same time period then it would have a weighting of 1.5% in the accounting data based index according to an exemplary embodiment.

The index weightings may be managed based on how the fundamentals of the companies within, or outside, the chosen index sample may change. As an example, the index manager could choose to rebalance the weightings from time to time such as, e.g., but not limited to, periodically, aperiodically, quarterly, as company pre-exceptional profits change, and/or on an annual basis, etc., and enter their choice into, e.g., a computing device. If, for instance, by the time of the next rebalancing period the total pre-exceptional profits of the largest one hundred companies, as measured by their pre-exceptional profits, had grown to $120, and theoretical company A now had pre-exceptional profits of $1.2, the computing device may calculate the weighting of company in the accounting data based index such as, e.g., the accounting data based index down to 1% from 2% in the previous period. Creating such accounting data based indices may give an investor the opportunity to follow, or invest, passively in an index which may be anchored to the economic realities of the companies within it. This new accounting data based index construction technique by a computing device may produce an index and related index fund products with increased stability and with increased economically rational behavior as compared with known methods of investing.

Accounting Data Based Indexation

In one exemplary embodiment, a computing device may create an accounting data based stock market index (ADBI) such as, e.g., an accounting data based stock market index by using any of the accounting data based data points regarding a company or a group of companies that can be found in a company's annual report and accounts. In one exemplary embodiment, the computing device may create an index of companies based on the relative size of the companies' sales, assets, profits, cash flow or the shareholders equity. In addition, the computing device can also create the ADBI by using a ratio of any of the data concerning a company or group of companies that may be contained in a company report and accounts. In one exemplary embodiment, this could include the relative size of the return on financial objects of a selection of companies, their return on investment, or their return on capital compared to their cost of capital.

Once the index manager has decided and entered which accounting data based criteria to use and how many constituents the manager may decide that he or she wants to include in the index, the computing device may create the index in the following way. If, for example, the index manager decides to construct an accounting data based stock market index of one hundred constituent members and decides to use pre-exceptional profit as the chosen accounting data based criteria, the computing device may create the index as follows. First, the computing device may perform a search to find which are the largest one hundred listed companies as defined by the size of their pre-exceptional profits. Once the computing device has identified this information, the computing device may be ready to construct the index. Companies may be accorded index weightings based on the relative size of their pre-exceptional profits. If the combined pre-exceptional profits of the one hundred companies is $100 and theoretical company A has pre-exceptional profits of $2, then it may have an index weighting of 2%. Once the one hundred companies may have been accorded their weightings, the computing device may begin to calculate future index performance as the share prices of the different companies in the index changes from day to day. This may be achieved by assuming a starting value for the index, or index portfolio, and then calculating how each of the index constituents may perform going forward.

The computing device may then rebalance the index weightings as the accounting data based data points change over time as desired by the investor. For instance, if at the end of the next company reporting season the combined pre-exceptional profits of the one hundred largest companies had grown from $100 to $120 and the pre-exceptional profits of theoretical company A had declined from $2 to $1.2, the computing device may determine its weighting in the index would decline from 2% in the prior period to 1% in the current period. Also, some of the original companies in the first one hundred may be eliminated from the index if their pre-exceptional profits fall below a certain level while new companies that were not in the original sample may be included. The computing device, under the direction of an investor, may choose to rebalance the weightings in the index, e.g., but not limited to, as individual companies report their pre-exceptional profits on a quarterly basis, and/or waiting until the majority of companies have reported their pre-exceptional profits and then adjusting them all at once. Also, the computing device, under the direction of an investor, could choose to determine the weightings based on, e.g., but not limited to, either the total nominal amount of pre-exceptional profit each quarter or on a cumulative rolling basis.

Constructing a stock market index according to an exemplary embodiment using accounting data based company accounts data or a ratio, or manipulation of that data may provide a series of genuine alternatives for investors who want to invest in a passive style while focusing on fundamentals that they believe are important. For instance, according to an exemplary embodiment an investor may always want to own an index of U.S. or foreign equities that are, e.g., the largest five hundred companies as measured by sales, or by profits, or by growth in sales, or by return on investment, or any accounting data based company accounts data or ratio of that data.

Long-Short Equity Strategies

An exemplary embodiment of the present invention may take long and short positions based on an extent to which accounting data based indexation suggests that equities are under or over valued.

FIG. 4 illustrates an exemplary process flow diagram 400 of a method of creating a portfolio of financial objects according to an embodiment of the present invention. In block 402 the process starts. In block 404, a determination is made of overlapping financial objects that appear in both an accounting data based index (ADBI) 410 and a conventional weighted index 412. In block 406, the weightings of the overlapping financial objects in the ADBI are compared with the weightings of the overlapping financial objects in the conventionally weighted index. Then, in block 408, one or more of the overlapping financial object may be purchased based on the result of the comparison.

In the alternative, exemplary embodiments of the present invention may determine non-overlapping financial objects appearing in only one of either an accounting data based index (ADBI) or a conventional weighted index by comparing financial objects in an ADBI with financial objects in a conventionally weighted index. Non-overlapping financial objects appearing only in the ADBI may be weighted by accounting data based weighting. Non-overlapping financial objects appearing only in the conventionally weighted index may be weighted by the conventional weighting. Financial objects may then be purchased based on the resulting weightings.

In an exemplary embodiment, an index of the largest 1,000 U.S. equities, weighted by accounting data, may overlap an index of the largest 1,000 U.S. capitalization-weighted companies by approximately 80%. The 20% of non-overlapping companies may drive the 2.0% increase in return of an accounting data based index such as, e.g., but not limited to, RESEARCH AFFILIATES FUNDAMENTAL INDEX™ (RAFI™) available from Research Affiliates. LLC of Pasadena, Calif., versus a cap-weighted index. A long-short strategy according to an exemplary embodiment is designed to leverage this 20% of companies that do not overlap, and may capture the expected alpha from the accounting data based indexation. An exemplary long-short U.S. equity strategy may be approximately beta and dollar neutral and can replace or complement market neutral or long-short strategies, or as part of a portfolio's alternative strategies bucket.

Accounting data based indexation may use economic measures of company size in constructing indexes. Using accounting data based economic measures of firm size may create an index that is indifferent to price. Accounting data based indexes may avoid flaws inherent in capitalization (price)-weighted indexes. Capitalization-weighted indexes naturally overweight overvalued stocks and underweight undervalued stocks. Accounting data based indexes may more accurately estimate a true fair value of a company, allowing the weight of a company's stock in the index to rise or fall only to the extent that the underlying economic value of the issuing company may rise or hill.

ADBI Portfolio Construction

FIG. 5 illustrates an exemplary flow process diagram 500 of a method of constructing an ADBI and a portfolio of financial objects using the ADBI, starting at block 502. In block 504, the ADBI 510 is created. Creating the ADBI may include, in block 506, selecting a universe of financial objects, and, in block 508, selecting a subset of the universe based on the accounting data to obtain the ADBI 510. Then, in block 512, a portfolio of financial objects is created using the ADBI 510, including weighting the financial objects in the portfolio according to a measure of value of a company associated with each financial object in the portfolio.

To construct an exemplary accounting data based index (ADBI), such as, e.g., but not limited to, the RESEARCH AFFILIATES FUNDAMENTAL INDEX™ (RAFI™), some number of financial objects, e.g., 1000 US equities, may be selected and/or weighted based on the following four accounting data based measures of firm size: book equity value, free cash flow, sales, and gross dividends.

An exemplary embodiment of an accounting data based index such as, e.g., but not limited to, the RAFI™ index may first weight all US equities by each of the four accounting data based measures of firm size detailed above. According to an exemplary embodiment, an optimal relative weighting between the four factors may differ by geography of the stock market from which the equities are selected such as, e.g., an equal weighting may be optimal in one country or industry sector, while a different relative weighting between the factors may make sense in another country or industry sector. The index may then compute an overall weight for each holding by equally-weighting each of the four accounting data based measure of firm size according to an exemplary embodiment. For example, assume that a company has the following weights: 2.8% of total US book values, 2% of total US cash flow, 3% of total US sales, and 2.2% of total US dividends.

Equally-weighting these four accounting data based measures of firm size (i.e., book value, cashflow, sales and dividends) may produce a weight of 2.5%. According to an exemplary embodiment, for companies that have never paid dividends, one may exclude dividends from the calculation of the company's accounting data based weight. Finally, in an exemplary embodiment, the 1000 equities with the highest accounting data based weights may be selected and may be assigned a weight in the RAFI™ portfolio equal to its accounting data based weight.

According to another exemplary embodiment, an accounting data based index such as, e.g., but not limited to, RAFI™ maybe constructed using aggregate (not per-share) measures of firm size. For example, RAFI™ may use total firm cash flow instead of cash flow per share and total book value instead of book value per share in its construction.

In an exemplary embodiment, the accounting data may include the following four factors, book value, sales/revenue, cash flow and dividends. In another exemplary embodiment, only one or more of these factors may be used. In another exemplary embodiment, additional factors may be used, such as, e.g., any other accounting data. In one exemplary embodiment, the weightings of each of these factors may be equal relative to one another, i.e., 25% of each of book value, sales/revenue, cash flow and dividends. In one exemplary embodiment, if there are no dividends, then the other three factors may be weighted in equal parts, i.e., 33% each to book value, sales/revenue, and cash flow. In another exemplary embodiment, dividends may be weighted in a greater part such as, e.g., but not limited to, weighting dividends at 50% and book value, sales/revenue, and cash flow at ⅙th each, etc. In one exemplary embodiment, weightings may be the same, depending on the country or sovereign of origin or the industry sector of the stock or other financial object. In another exemplary embodiment, weightings may vary depending on the country or sovereign of origin or the industry sector of the stock or other financial object. In another exemplary embodiment, weightings may vary based on other factors, such as, e.g., but not limited to, types of assets, industry sectors, geographic sectors, sizes of companies, profitability of companies, amount of revenue generated by the company, etc.

An accounting data based index may be available in several varieties to meet the unique needs of different classes of retail and institutional investors, including, e.g., but not limited to, as enhanced portfolios, Exchange Traded Funds (ETFs), open-end mutual funds, tax managed portfolios, a collection of financial objects managed collectively but tracked separately, and closed-end mutual funds. Various US and international investment managers may offer, e.g., but not limited to, a suite of products.

A limited partnership or other fund or account investing in assets based on an Accounting Data Based Index, such as, e.g., Research Affiliates Fundamental Index, L.P. (RAFI LP) may increase the alpha generated by accounting data based indexation in the US through improvements or enhancements, including, e.g., but not limited to, monthly cash rebalancing and quality of earnings and corporate governance screens. The additional enhancements available through the LP may be expected to add an additional 40-70 bps of annual outperformance above the 200 basis points (bps) of annual out performance that may be achieved through the use of accounting data based indexing in portfolio construction.

A limited partnership or other fund or account investing in assets based on an ADBI international LP such as, RAFI International LP (RAFI™-I may apply accounting data based indexation to the international equity space in an exemplary embodiment to create an enhanced portfolio of, e.g., but not limited to 1000 international (ex-US) equities. RAFI-I may be expected to outperform capitalization weighted indexes by approximately 250 bps per year. Like the other RA Fundamental Index LP's, RAFI-I is an enhanced portfolio that may use monthly cash rebalancing and quality of earnings and corporate governance screens to improve upon the performance of the RAFI International index.

Open-end mutual funds may manage financial objects employing a fixed income strategy and portable alpha using the Accounting Data Based Index (ADBI) according to an exemplary embodiment.

An Exchange Traded Fund (ETF) of the ADBI such as, e.g., but limited to, POWERSHARES FTSE RAFI US 1000 Portfolio ETF (ticker symbol: PRF) may meet needs of retail and institutional investors interested in a low-cost means of accessing the power of accounting data bused indexing in another exemplary embodiment.

Another exemplary embodiment includes a closed-end fund implementing accounting data based indexing such as, e.g., Canadian Fundamental Income 100, a closed-end mutual fund of the largest 100 accounting data based equities in Canada which attracted investments from retail and institutional investors in 2005, one of the most difficult closed end markets in recent history, demonstrating the strength of the accounting data based indexation strategy.

Accounting Data Based Indexation Long-Short (ADBI-LS)

Accounting data based indexation long-short (ADBI-LS) such as, e.g., but not limited to, RAFI-LS, is a long-short U.S. equity strategy that leverages ADBI such as RAFI™ innovation. The RAFI U.S. 1000 portfolio is designed to outperform the Russell 1000 (and the S&P 500) by about 200 bps per annum. By going long in stocks that have greater weight in the RAFI U.S. 1000 portfolio relative to the Russell 1000 and short in the stocks that are underweight in the RAFI U.S. 1000 relative to the Russell 1000, the RAFI-LS strategy captures the RAFI alpha process and enhances that alpha source.

ADBI-LS such as, e.g., RAFI-LS according to an exemplary embodiment, is designed to be roughly dollar and beta neutral, but not sector neutral. The sector bet can be significant if the ADBI strategy determines that a sector is substantially overvalued.

In general the overlap between ADBI RAFI U.S. 1000 and capitalization based index Russell 1000 may be about 75%. This may give 25% weights for the long portfolio and 25% weights for the short portfolio. The portfolio may be applied to 300% long and 300% short, which may magnify the RAFI alpha and the portfolio volatility. Leverage may be applied tactically, and can range from about 200% long/short to about 400% long/short according to exemplary embodiments.

ADBI-LS such as, e.g., RAFI-LS according to an exemplary embodiment may be designed to achieve an annual volatility of 15-25%. Volatility of the exemplary RAFI-LS, since inception, has been about 15%.

According to an exemplary embodiment, ADBI-LS, such as, e.g., RAFI-LS may use leverage in both its short and long positions. On average, $100 invested in RAFI-LS may result in a $300 notional long position and a $300 notional short position.

Implementation of an ADBI-LS's Long and Short Positions

According to an exemplary embodiment, one does not necessarily directly need to hold long or short positions in the underlying stocks, nor does it need to access a direct line of credit for the portfolio leverage. Instead, according to an exemplary embodiment, derivatives, such as a total return swaps may be used to implement the long and short positions. It may be possible to achieve minimal counterparty default risk exposure by entering into swaps with large Wall Street firms in an exemplary embodiment. Investors in an ADBI-LS may not be physically shorting any U.S. equities; rather, investors may merely hold OTC derivative contracts. This may provide both tax benefits and efficiency in investment logistics.

ADBI-LP such as, e.g., RAFI-LP™, may be a full-market ADBI. ADBI-LS such as, e.g., RAFI-LS™, may be a fund that uses the differences between company weights in ADBI such as, e.g.. RAFI™ and in a capitalization-weighted index to establish long and short positions according to an exemplary embodiment.

ADBI-LS may be designed to be dollar neutral and equity beta neutral in an exemplary embodiment. Therefore, one may expect ADBI-LS returns to be largely uncorrelated with the equity market return in an exemplary embodiment. However, ADBI may not be market neutral in the traditional sense as it is not industry sector neutral in an exemplary embodiment.

ADBI-LS does not pair positions, and thus is different from traditional equity long-short strategies whereby e.g., but not limited to, a short General Motors (GM) position is paired with a long Ford position. Instead, ADBI-LS may acquire both long and short positions based on the relative difference between the ADB Index such as, e.g., FUNDAMENTAL INDEX™ weights and those of a cap-weighted index, such as, e.g., but not limited to the Russell 1000.

An exemplary embodiment of ADBI-LS may rebalance periodically and/or aperiodically. For example, on average, the ADBI-LS, such as, e.g., RAFI-LS portfolio may hold its long-short bets for about one year. The cash flow from new capital contributed to the strategy may be used to rebalance the portfolio to create or alter existing long-short bets according to an exemplary embodiment.

In an exemplary embodiment, the present invention may be a method of constructing a portfolio of financial objects, comprising: purchasing a portfolio of a plurality of mimicking financial objects to obtain and/or create a mimicking portfolio, wherein performance of the portfolio of mimicking financial objects substantially mirrors the performance of the accounting data based index based portfolio without substantially replicating the accounting data based index based portfolio. The method may further obtain and/or use a risk model for the portfolio where the risk model mirrors a risk model of the accounting data based index. The risk model may be substantially similar to the Fama-French factors, wherein the Fama-French factors may comprise at least one of size effect (e.g., where small cap beats large cap), value effect (e.g., where high B/P beats low B/P), and/or momentum effect (e.g. where strong momentum beats weak momentum in very long run, e.g. 10 or more years). The performance of the portfolio of mimicking financial objects may substantially mirror the performance of the accounting data based index based portfolio without substantially replicating financial objects and/or weightings in the accounting data based index based portfolio.

In another exemplary embodiment, the present invention may include purchasing a plurality of financial objects according to weightings substantially similar to the weightings of an accounting data based index (ADBI), where performance of the financial objects substantially mirrors the performance of the ADBI without using substantially the same financial objects in the ADBI.

While various embodiments of the present invention have been described above, it should be understood that they have been presented by way of example only, and not limitation. Thus, the breadth and scope of the present invention should not be limited by any of the above-described exemplary embodiments, but should instead be defined only in accordance with the following claims and their equivalents.

Claims

1. A computer-implemented method for construction of an index of financial objects, the computer-implemented method comprising:

creating, by at least one computer, the index of the financial objects, said creating comprises:

selecting, by the at least one computer, financial objects as constituents of the index based upon at least one accounting data regarding entities issuing the financial objects rather than price of the financial objects, wherein the at least one accounting data comprises at least one of: cash flow of the entities issuing the financial objects, sales of the entities issuing the financial objects, book value of the entities issuing the financial objects or any dividends of the entities issuing the financial objects; and

weighting, by the at least one computer, the constituents of the index based upon at least one accounting data regarding the entities issuing the financial objects rather than price of the financial objects, to obtain constituent weightings of the constituents of the index, wherein the at least one accounting data comprises at least one of: cash flow of the entities issuing the financial objects, sales of the entities issuing the financial objects, book value of the entities issuing the financial objects or any dividends of the entities issuing the financial objects, and

managing, by the at least one computer, the index, and managing at least one portfolio of financial objects based on the index comprising:

altering, by the at least one computer, the relative weightings of the financial objects within said at least one portfolio of financial objects based on the index as the at least one accounting data concerning the entities of the financial objects changes or the constituents of the index change over time.

2. The computer-implemented method of claim 1, wherein the computer implemented method comprises:

creating, by the at least one computer, said index of financial objects wherein the constituent weightings are based upon any ratio of at least one accounting data, or any manipulation of at least one accounting data, that is contained within a company financial report.

3. The computer-implemented method of claim 1, wherein the computer implemented method comprises:

creating, by the at least one computer, said index of financial objects wherein the constituent weightings are based upon any ratio of at least one accounting data per share, or any manipulation of at least one accounting data, that is contained within a company financial report.

4. The computer implemented method of claim 1, wherein said altering comprises at least one of:

altering based on at least one of: changes in relative weightings of financial objects in said index; or changes in said financial objects that are members of said index; or

altering at the time of at least one of: when, or after, at least one entity associated with a given financial object of said index reports its accounting information.

5. The computer-implemented 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 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.

6. The method of claim 1, wherein said at least one accounting data rather than price further 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;

dividend yields 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.

7. The computer-implemented method of claim 1, wherein the computer implemented method comprises:

creating, by the at least one computer, said index wherein the constituent weightings are based upon weighting of said cash flows of the entities issuing the financial objects, said sales of the entities issuing the financial objects, and said book value of the entities issuing the financial objects.

8. The computer-implemented method of claim 1, wherein the computer implemented method comprises:

creating, by the at least one computer, said index wherein the constituent weightings are based upon equally weighting said cash flows of the entities issuing the financial objects, said sales of the entities issuing the financial objects, and said book value of the entities issuing the financial objects.

9. The computer-implemented method of claim 1, wherein the constituent weightings are based upon equally weighting said cash flows of the entities issuing the financial objects, said sales of the entities issuing the financial objects, and said book value of the entities issuing the financial objects, at ⅓ each.

10. The computer-implemented method of claim 1, wherein the computer implemented method comprises:

creating, by the at least one computer, said index wherein the constituent weightings are based upon weighting of said cash flows of the entities issuing the financial objects, said sales of the entities issuing the financial objects, said book value of the entities issuing the financial objects, and said any dividends of the entities issuing the financial objects.

11. The computer-implemented method of claim 1, wherein the computer implemented method comprises:

creating, by the at least one computer, said index wherein the constituent weightings are based upon equally weighting of said cash flows of the entities issuing the financial objects, said sales of the entities issuing the financial objects, said book value of the entities issuing the financial objects, and said any dividends of the entities issuing the financial objects.

12. The computer-implemented method of claim 1, wherein the constituent weightings are based upon:

equally weighting by the at least one computer, said cash flows of the entities issuing the financial objects, said sales of the entities issuing the financial objects, said book value of the entities issuing the financial objects, and said any dividends of the entities issuing the financial objects, at ¼ each, for financial objects with dividends; and

equally weighting by the at least one computer, said cash flows of the entities issuing the financial objects, said sales of the entities issuing the financial objects, and said book value of the entities issuing the financial objects, at ⅓ each, for financial objects with no dividends.

13. The computer-implemented method of claim 1, wherein the constituent weighting of the entity of the financial object is based upon the at least one accounting data of the entity of the financial object relative to the total at least one accounting data of the entities of the financial objects.

14. The computer-implemented method of claim 1, wherein the constituent weightings are adjusted based on at least one of: a country, a sovereign of origin of the entity of the financial object, or an industry sector of the entity of the financial object.

15. The computer-implemented method of claim 1, wherein said selecting comprises selecting, by the at least one computer, a set of the entities of the financial objects of a universe of financial objects.

16. The computer-implemented method of claim 15, wherein said selecting is relative to the at least one accounting data of the entities of the financial objects of the universe.

17. The computer-implemented method of claim 16, wherein said selecting comprises:

selecting by the at least one computer, the set of the entities of the financial objects based on weighting the relative size of the at least one accounting data of the entity of each financial object relative to a total of the at least one accounting data of the entities of the financial objects of the universe.

18. The computer-implemented method of claim 15, wherein said any dividends of the entities of the financial objects comprise the averaged total dividend distributions of the entities of the financial objects for a period of time, said cash flows of the entities of the financial objects comprise the averaged cash flow of the entities of the financial objects for the period of time, and said sales of the entities of the financial objects comprise the averaged sales of the entities of the financial objects for the period of time.

19. The computer-implemented method of claim 18, wherein the period of time

20. The computer-implemented method of claim 15, wherein said selecting comprises:

selecting, by the at least one computer, a set of the entities of the financial objects based upon weighting the relative size of an average of the at least one accounting data of the entity of the financial object relative to a total of the averaged at least one accounting data of the entities of the financial objects of said universe.

21. The computer-implemented method of claim 15, wherein said selecting the set comprises:

calculating, by the at least one computer, measures of value for the entities of the financial objects based upon said at least one accounting data regarding the entities of the financial objects; and

selecting, by the at least one computer, a set of the entities of the financial objects based on the measures of value.

22. The computer-implemented method of claim 21, wherein said selecting the set of the entities of the financial objects comprises selecting, by the at least one computer, a fixed number of the entities of the financial objects with the largest measures of value from the universe.

23. The computer-implemented method of claim 15, wherein said universe comprises at least one of:

publicly traded companies;

a sector;

a market;

a market sector;

an industry sector;

a geographic sector;

an international sector;

a sub-industry sector;

a government issue; or

a tax exempt financial object.

24. The computer-implemented method of claim 15, wherein said weighting comprises:

determining by the at least one computer, the constituent weighting of the entities of the financial objects of the set, by the at least one computer, based upon weighting the relative size of an average of the at least one accounting data of entities issuing financial objects for a period of time relative to a total of the averaged at least one accounting data of the entities of the financial objects of said universe.

25. The computer-implemented method of claim 1, wherein the constituent weightings of the entities of the financial objects are based on a proportion of types of financial objects issued by the same entity.

26. The computer-implemented method of claim 1, further comprising:

(a) gathering, by the at least one computer, the at least one accounting data about a plurality of the financial objects;

(b) selecting, by the at least one computer, a plurality of financial objects based on an objective measure of scale comprising at least one accounting data of the entity associated with each of said plurality of financial objects to create said index of financial objects; and

(c) weighting, by the at least one computer, each of said plurality of financial objects selected in said index based on an objective measure of scale comprising at least one accounting data of the entity associated with each of said plurality of financial objects,

wherein said weighting comprises:

(i) weighting by the at least one computer at least one of said plurality of financial objects based on said at least one accounting data; and

(ii) weighting is exclusive of weighting based on market capitalization, equal weighting, and share price weighting.

27. The method according to claim 26, wherein said weighting based on the objective measure of scale comprises weighting by the at least one computer based on said any dividends of the entities issuing the financial objects, said book value of the entities issuing the financial objects, said cash flows of the entities issuing the financial objects, or said sales of the entities issuing the financial objects.

28. The method of claim 27, further comprising equally weighting by the at least one computer, each objective measure of scale.

29. The method of claim 26, wherein (c) comprises weighting by the at least one computer based on said objective measure of scale, wherein said objective measure of scale comprises a measure of the entity size associated with each of said plurality of financial objects.

30. The method of claim 29, wherein said measure of the entity size 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;

dividend yields of the entity;

expected dividend 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.

31. A computer-implemented method of claim 1, further comprising:

creating, by at least one computer, a portfolio of financial objects comprising purchasing constituent financial objects of the index in proportion to the constituent weightings of the constituents of the index.

32. The method of claim 1, wherein said at least one accounting data rather than price further comprises at least one of:

a financial ratio of a company;

a ratio of accounting based data;

a ratio of accounting based data per share;

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

a dividend policy ratio; a dividend yield ratio; or

a payout ratio.

33. The computer-implemented method of claim 1, further comprising: selecting a subset of a universe of financial objects based on at least one of: a liquidity of the financial objects, or a minimum size of said entity of said financial object.

34. The computer-implemented method of claim 1, wherein said at least one accounting data regarding entities issuing the financial objects further comprises net income of the entities issuing the financial objects.

35. The computer-implemented method of claim 1, wherein said selecting comprises:

calculating a first weight of a first accounting data of said at least one accounting data regarding an entity;

calculating a second weight of a second accounting data of said at least one accounting data regarding the entity;

averaging the first weight and the second weight to obtain an averaged weight; and

selecting the entity based on the averaged weight.

36. The computer-implemented method of claim 1, wherein said weighting comprises:

calculating a first weight of a first accounting data of said at least one accounting data regarding an entity;

calculating a second weight of a second accounting data of said at least one accounting data regarding the entity;

averaging the first weight and the second weight to obtain an averaged weight; and

weighting the entity based on the averaged weight.

37. The computer-implemented method of claim 1, further comprising:

quarterly rebalancing the index of financial objects.

38. The method according to claim 1, wherein said selecting said financial objects further comprises selecting a universe and selecting a subset of said universe.

39. The method according to claim 38, wherein said subset comprises at least one of:

a subset based upon at least one criteria;

a sector;

a market;

a market sector;

an industry sector;

a geographic sector;

an international sector;

a sub-industry sector;

a government issue; or

a tax exempt financial object.

40. The method according to claim 38, wherein said universe comprises at least one of:

publicly traded stocks of at least one of: at least one country, or at least one country's at least one stock market;

at least one sector;

at least one market;

at least one market sector;

at least one growth market sector;

at least one value market sector;

at least one industry sector;

at least one geographic sector;

at least one international sector;

at least one sub-industry sector;

at least one government issue;

at least one measure of value;

at least one price-based ratio sector;

at least one size of an entity;

at least one market size of an entity;

any measure of size of an entity;

at least one size of a company; or

at least one tax exempt financial object.

41. The method according to claim 38, wherein said selecting said subset of said universe comprises selecting upon at least one of: a liquidity of the financial objects, or a minimum size of the entity of the financial object.

42. The method according to claim 38, wherein said selecting said subset comprises selecting, by the at least one processor based on user input, said subset based on any measure of company size.

43. The method according to claim 42, wherein said selecting said subset comprises selecting, by the at least one processor based on user input, said subset based on at least one of: a maximum measure of company size, a minimum measure of company size, or a range of measures of company size.

44. The method according to claim 38, wherein said selecting said universe comprises selecting a universe based on any measure of company size.

45. The method according to claim 44, wherein said selecting said subset comprises selecting, by the at least one processor based on user input, said subset based upon at least one of: a minimum measure of said company size; a maximum measure of said company size, or a range of measures of said company size.

46. The method according to claim 38, further comprising: wherein at least one of said selecting said universe or said selecting said subset, further comprises: selecting, by the at least one processor based on user input, based upon a measure of company size comprising at least one of: a large cap, a mid cap, or a small cap.

47. The method according to claim 38, further comprising:

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

48. The method according to claim 38, further comprising:

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

49. The method according to claim 38, wherein said universe comprises publicly traded stocks of all companies in at least one of: a given country; or at least one stock market of a given country.

50. The method according to claim 38, wherein said subset is selected based upon a measure of company size comprising at least one of:

a financial ratio of a company;

a ratio of accounting based data;

a ratio of accounting based data per share;

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

a dividend policy ratio; a dividend yield ratio; or

a payout ratio.

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

selecting, by the at least one processor based on user input, a subset of an accounting data based index (ADBI) based on a measure of scale of entities in said ADBI.

52. The method according to claim 1, wherein said creating said index, said managing said index, and said managing said at least one portfolio are performed by at least one of: a same entity as, or one or more separate entities.

53. A computer-implemented method for construction of a portfolio based on an index, wherein selecting financial objects as constituents of the index and weighting of the constituents of the index is based upon at least one accounting data regarding entities issuing the financial objects rather than price data of the financial object, the computer-implemented method comprising:

creating, by at least one computer, the portfolio of financial objects comprising purchasing constituent financial objects of the index in proportion to constituent weightings of the constituents of the index, wherein the index was created by an index provider having:

selected, by the at least one computer, financial objects as said constituents of the index based upon at least one accounting data regarding entities issuing the financial objects rather than price of the financial objects, wherein the at least one accounting data comprises at least one of: cash flow of the entities issuing the financial objects, sales of the entities issuing the financial objects, book value of the entities issuing the financial objects or any dividends of the entities issuing the financial objects; and

weighted, by the at least one computer, the constituents of the index based on at least one accounting data related to the entities of the financial objects rather than price of the financial objects, to obtain the constituent weightings of the constituents of the index, wherein the at least one accounting data comprises at least one of: cash flow of the entities issuing the financial objects, sales of the entities issuing the financial objects, book value of the entities issuing the financial objects or any dividends of the entities issuing the financial objects, and

managing the portfolio comprising:

purchasing, by the at least one computer, financial objects at least one of: added to the index or having increased constituent weighting over time; and

selling, by the at least one computer, financial objects at least one of: removed from the index or having decreased constituent weighting over time.

54. The computer-implemented method of claim 53, wherein said at least one accounting data regarding entities issuing the financial objects further comprises net income of the entities issuing the financial objects.

55. The method according to claim 53, wherein said creating said portfolio, said purchasing, said selling, and said managing are performed by at least one of: a same entity as, or one or more separate entities other than, the index provider.

56. A computer-implemented method for construction of an index and portfolio of financial objects based upon cash flow, sales, book value, and any dividends of the financial objects, the computer-implemented method comprising:

creating, by at least one computer, an index of the financial objects, comprising:

selecting, by the at least one computer, a plurality of selected financial objects to be placed in said index wherein said selecting comprises:

selecting, by the at least one computer, financial objects to be placed in said index based upon a cash flow, or a ratio of said cash flow, of an entity associated with a given financial object,

selecting, by the at least one computer, the financial objects to be placed in said index based upon sales, or a ratio of said sales, of the entity associated with the given financial object,

selecting, by the at least one computer, the financial objects to be placed in said index based upon a book value, or a ratio of said book value, of the entity associated with the given financial object, and

selecting, by the at least one computer, the financial objects to be placed in said index based upon any dividends, or a ratio of said any dividends, of the entity associated with the given financial object; and

weighting, by the at least one computer, said plurality of selected financial objects placed in said index,

wherein said weighting comprises:

weighting, by the at least one computer, said selected financial objects placed in said index based upon a cash flow, or a ratio of said cash flow, of an entity associated with a given financial object,

weighting, by the at least one computer, said selected financial objects placed in said index based upon sales, or a ratio of said sales, of the entity associated with the given financial object,

weighting, by the at least one computer, said selected financial objects placed in said index based upon a book value, or a ratio of said book value, of the entity associated with the given financial object, and

weighting, by the at least one computer, said selected financial objects placed in said index based upon any dividends, or a ratio of said any dividends, of the entity associated with the given financial object; and

creating, by the at least one computer, at least one portfolio of financial objects based on said index comprising:

purchasing, by the at least one computer, said selected financial objects placed in said index in proportion to said weightings based upon said cash flow, said sales, said book value, and said any dividends, or said ratio of said cash flow, said ratio of said sales, said ratio of said book value, and said ratio of said any dividends, and placing said purchased financial objects into said at least one portfolio.

57. The computer-implemented method of claim 56, wherein the computer implemented method comprises:

creating, by the at least one computer, said index of financial objects, and said at least one portfolio of financial objects based on said index wherein said weightings are based upon at least one of: any ratio of at least one accounting data, any ratio of at least one accounting data per share, or any manipulation of at least one accounting data, wherein the at least one accounting data is contained within a company financial report.

58. The computer implemented method of claim 56, wherein the computer implemented method comprises:

managing, by the at least one computer, said index, and said at least one portfolio of financial objects based on said index comprising:

altering, by the at least one computer, said at least one portfolio based on said index as the at least one accounting data concerning the entities of the financial objects changes or said plurality of selected financial objects placed in said index change over time.

59. The computer implemented method of claim 58, wherein said altering comprises at least one of:

altering based on at least one of: changes in said weightings of financial objects in said index or changes in said financial objects that are placed in said index; or

altering at the time of at least one of: when, or after, at least one entity associated with a given financial object of said index reports its accounting information.

60. The computer-implemented method of claim 56, 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 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.

61. The computer-implemented method of claim 56, further comprising:

quarterly rebalancing the index.