U.S. patent application number 11/690542 was filed with the patent office on 2007-12-13 for method and system for comparison and evaluation of investment portfolios.
This patent application is currently assigned to BUYSIDE RESEARCH LLC. Invention is credited to James Gately Squyres.
Application Number | 20070288339 11/690542 |
Document ID | / |
Family ID | 25412989 |
Filed Date | 2007-12-13 |
United States Patent
Application |
20070288339 |
Kind Code |
A1 |
Squyres; James Gately |
December 13, 2007 |
METHOD AND SYSTEM FOR COMPARISON AND EVALUATION OF INVESTMENT
PORTFOLIOS
Abstract
A method and system performs an analysis to compare and evaluate
the performance of an investment portfolio The method and system
includes processes performed on the financial data for each stock
in the investment portfolio followed by a fundamental financial
analysis. The fundamental financial analysis includes a negative
base number inclusion process relating to stocks in the investment
portfolio and uses financial data for the stocks that is selected
from comparable time periods for each of the stocks, thereby
generating a more accurate evaluation of the investment
portfolio.
Inventors: |
Squyres; James Gately;
(Darien, CT) |
Correspondence
Address: |
KRAMER LEVIN NAFTALIS & FRANKEL LLP;INTELLECTUAL PROPERTY DEPARTMENT
1177 AVENUE OF THE AMERICAS
NEW YORK
NY
10036
US
|
Assignee: |
BUYSIDE RESEARCH LLC
One Mansfield Place
Darien
CT
06820
|
Family ID: |
25412989 |
Appl. No.: |
11/690542 |
Filed: |
March 23, 2007 |
Related U.S. Patent Documents
|
|
|
|
|
|
Application
Number |
Filing Date |
Patent Number |
|
|
09900724 |
Jul 6, 2001 |
7222095 |
|
|
11690542 |
Mar 23, 2007 |
|
|
|
Current U.S.
Class: |
705/36R |
Current CPC
Class: |
G06Q 40/02 20130101;
G06Q 40/00 20130101; G06Q 40/06 20130101 |
Class at
Publication: |
705/036.00R |
International
Class: |
G06Q 40/00 20060101
G06Q040/00 |
Claims
1. A method for evaluating an investment portfolio comprising:
accessing data for a plurality of companies in an investment
portfolio; fiscally realigning the data; calculating at least one
predetermined set of values for each company using the fiscally
realigned data; aggregating the at least one predetermined set of
values to create aggregated values for the investment portfolio;
and creating a performance indicator as a function of the
aggregated values.
2. The method of claim 1, wherein the data includes historical
financial data for the plurality of companies.
3. The method of claim 2, wherein the historical financial data is
accessed from a database.
4. The method of claim 3, wherein the historical financial data is
based on financial disclosures by each of the plurality of
companies.
5. The method of claim 4, wherein the financial disclosures include
one of 10-K filings and 10-Q filings.
6. The method of claim 1, wherein fiscally realigning comprises
converting the data from a fiscal year basis to a comparable
calendar year basis.
7. The method of claim 6, wherein the fiscally realigned data
provides a comparable comparison period for the plurality of
companies, the comparable comparison period having one of two of
three months in common for a desired fiscal quarter and forty-eight
of sixty months in common for a five year fiscal period.
8. The method of claim 6, wherein the fiscal year basis includes a
fiscal day, a fiscal month, and a fiscal year.
9. The method of claim 8, wherein the comparable calendar year
basis includes a calendar day, a calendar month, and a calendar
year.
10. The method of claim 1, wherein the fiscally realigning includes
eliminating data for any of the plurality of companies lacking a
comparable fiscal year.
11. The method of claim 10, wherein the comparable fiscal year
includes a fiscal year having between fifty weeks and fifty-four
weeks.
12. The method of claim 10, wherein fiscally realigning comprises
converting a fiscal period for each of the plurality of companies
into a comparable calendar period.
13. The method of claim 12, wherein the fiscal period includes one
of a five-year period, a one-year period, a year-to-date period and
a quarterly period.
14. The method of claim 12, wherein converting each fiscal period
includes deriving a calendar-based date for the fiscal period and
realigning the financial data using the calendar-based date.
15. The method of claim 14, wherein deriving the calendar-based
date includes: if a last day of the fiscal period ends between the
first and fifteenth day of a fiscal month, then the fiscal period
is realigned to a month preceding the fiscal month; and if the last
day of the fiscal period is after the fifteenth day of the fiscal
month, then the fiscal period retains the fiscal month.
16. The method of claim 14, wherein realigning the financial data
includes: for a five year period, if a last month of the fiscal
period is between July and December, a calendar year assigned to
the fiscal period is the same as the year of the fiscal period, and
if the last month of the fiscal period is between January and June,
then the calendar year assigned to the fiscal period is one year
less than the year of the fiscal period; for up to a one year
period, if the last month of the fiscal period is one of January,
April, July and October, then a calendar quarter is assigned to the
fiscal period as ending a month preceding the last month of the
fiscal period, otherwise, the calendar quarter is assigned to the
fiscal period as ending the last month of the fiscal period.
17. The method of claim 1, wherein the at least one predetermined
set of values includes a fundamental financial measure.
18. The method of claim 17, wherein the fundamental financial
measure includes one of a growth measure, a profitability measure,
a capital structure measure and a valuation measure.
19. The method of claim 18, wherein the growth measure includes one
of a sales growth value, an earnings per share value and common
equity per share value.
20. The method of claim 18, wherein the profitability measure,
includes one of a return on equity value and a profit margin
value.
21. The method of claim 18, wherein the capital structure measure
includes one of an equity:assets value, an interest coverage value
and a cash flow:debt service value.
22. The method of claim 18, wherein the valuation value includes
one of a price:earnings value and a price:book value.
23. The method of claim 1, wherein the performance indicator
includes one of a growth indicator, a profitability indicator, a
capital structure indicator and a valuation indicator.
24. The method of claim 23, wherein the aggregated values include
at least one predetermined set of values for a respective one of
the plurality of companies having a negative base value.
25. The method of claim 1, wherein aggregating the at least one
predetermined set of values includes weighing the data for each of
the plurality of companies based on a value of each company as a
percentage of the plurality of companies.
26. The method of claim 1, wherein the investment portfolio
includes one of a mutual fund, a pension fund or other investment
portfolio.
27. The method of claim 1, wherein each of the plurality of
companies is identified by a CUSIP member.
28-33. (canceled)
34. A method for evaluating an investment portfolio comprising:
accessing data for a plurality of companies in an investment
portfolio; fiscally realigning the data to exclude data for any
company in the investment portfolio that lacks data for an entire
evaluation period and to include data for any company in the
investment portfolio that has data for the entire evaluation
period; calculating at least one predetermined set of values for
each company using the fiscally realigned data; aggregating the at
least one predetermined set of values to create aggregated values
for the investment portfolio; and creating a performance indicator
as a function of the aggregated values.
35. The method according to claim 34, wherein the entire evaluation
period includes a user-defined evaluation period.
36. The method according to claim 35, wherein the user-defined
evaluation period includes one of a day, a week, a month, three
months, six months, a year, two years and five years.
37. A method for evaluating and comparing investment portfolios
comprising: accessing data for a plurality of companies in a first
investment portfolio and in a second investment portfolio; fiscally
realigning the data; calculating at least one predetermined set of
values for each company in each of the first and second portfolios
using the fiscally realigned data; aggregating the at least one
predetermined set of values to create aggregated values for each of
the first and second investment portfolios; creating a performance
indicator as a function of the aggregated values for each of the
first and second investment portfolios; and ranking the first and
second investment portfolios as a function of the performance
indicator.
38. The method according to claim 37, wherein the performance
indicator includes more than one performance indicator.
39. The method according to claim 38, wherein the ranking includes
ranking the first and second investment portfolios as a function of
the more than one performance indicator.
40. The method according to claim 1, wherein the performance
indicator includes a fundamental financial measure.
41. The method according to claim 40, wherein the fundamental
financial measure includes one of a growth measure, a profitability
measure, a capital measure, a valuation measure, a sales growth
value, an earnings per share value, a common equity per share
value, a return on equity value, a profit margin value, an
equity:assets value, an interest coverage value, a cash flow:debt
service value, a price earnings value and a price:book value.
42. A method for evaluating an investment portfolio comprising:
accessing data for a plurality of companies in an investment
portfolio; fiscally realigning the data; calculating at least one
predetermined set of values for each company using the fiscally
realigned data; aggregating the at least one predetermined set of
values to create aggregated values for the investment portfolio;
and evaluating the investment portfolio as a function of the
aggregated values.
43. The method according to claim 40, wherein the performance
indicator includes financial data derived from financial reports
including balance sheets and income statements.
44. A method for evaluating an investment portfolio comprising:
accessing data for a plurality of companies in an investment
portfolio; fiscally realigning the data; calculating at least one
predetermined set of values for each company using the fiscally
realigned data; aggregating the at least one predetermined set of
values to create aggregated values for the investment portfolio;
and creating a performance indicator as a function of the
aggregated values, wherein the aggregated values include at least
one predetermined set of values for a respective one of the
plurality of companies having a negative base value.
45. A method for evaluating an investment portfolio comprising:
accessing data for a plurality of companies in an investment
portfolio; fiscally realigning the data to exclude data for any
company in the investment portfolio that lacks data for an entire
evaluation period and to include data for any company in the
investment portfolio that has data for the entire evaluation
period; calculating at least one predetermined set of values for
each company using the fiscally realigned data, wherein when the
evaluation period for one of the plurality of companies includes
more than one holdings period, a value for a respective one of the
predetermined set of values for each holdings period is determined,
weighted as a function of the percentage of the holdings period
with respect to the evaluation period, and summed with values for
each holdings period within the evaluation period to determine the
value for the respective one of the predetermined set of values for
the entire evaluation period; aggregating the at least one
predetermined set of values to create aggregated values for the
investment portfolio; and creating a performance indicator as a
function of the aggregated values.
Description
FIELD OF THE INVENTION
[0001] The present invention relates to a method and system for
comparing and evaluating investment portfolios. More particularly,
the present invention relates to a method and system for evaluating
the performance of investment portfolios, such as pension funds,
profit sharing funds or mutual funds, of securities such as common
stocks or corporate bonds, based on fundamental performance
measures commonly applied to individual securities.
BACKGROUND INFORMATION
[0002] Fundamental analysis of a company's financial statements is
a methodology used to analyze the performance of securities,
especially stock. Financial data made available in company
disclosures generally serve as the basis for the fundamental
analysis. For example, these financial data can be extracted from
financial statements such as 10-Ks and 10-Qs. These statements are
reported based on fiscal years and fiscal quarters. The financial
data can be entered into various formulae in order to gauge the
performance of a company's underlying business.
[0003] Stock databases containing the financial data are
commercially available. The financial data associated with a
specific company are usually referenced by a CUSIP number. CUSIP
numbers, operated by Standard & Poor's for the American Bankers
Association, establish a standardized system for identifying
financial instruments, for example, the stock of all registered
U.S. and Canadian companies and U.S. government and municipal
bonds.
[0004] Not until recently were databases that identify all of the
stocks of a mutual fund by CUSIP number made commercially
available. The CUSIP number allows the financial data in a stock
database to be associated with the respective stock in a mutual
fund in a fund database.
[0005] As with individual securities, analytic methods can be used
to measure the overall performance of a mutual fund or other
financial portfolio. Traditional analyses of mutual funds measure
performance are based upon price changes and volatility. For
example, with respect to the analyses of mutual funds, references
to total return represent a fund's gains over a specified period of
time. Total return includes both income (in the form of dividends
or interest payments) and capital gains or losses (the increase or
decrease in the value of a security). Commercial providers of
investment information, for example Morningstar, Inc. of Chicago,
Ill., calculate total return by taking the change in a fund's net
asset value, assuming the reinvestment of all income and
capital-gains distributions (on the actual reinvestment date used
by the fund) during the period, and then dividing by the initial
net asset value.
[0006] Unless marked as load-adjusted total returns, conventional
commercial analyses of mutual funds do not adjust total return for
sales charges or for redemption fees. (e.g., Morningstar Return,
Morningstar Risk-Adjusted Ratings, and the load-adjusted returns do
incorporate those fees.) Total returns do account for management,
administrative, and 12b-1 fees and other costs automatically
deducted from fund assets.
[0007] These conventional mutual fund analyses do not, however, use
methods that resemble the fundamental analysis techniques used in
fundamental analysis. For example, there are analyses of mutual
funds which measure performance based on price changes and
volatility measures. There also are analyses which list the top ten
(or some other small number) stocks (as measured by market value).
Yet other mutual fund analyses measure industry or sector overlap
among funds (e.g., the percent in technology in fund A versus the
percent in technology in fund B). There also are systems which
compare the securities in investment portfolios to determine
overlap. However, these performance measurements of mutual funds do
not accurately reflect the overall or cumulative fundamental
analyses of the individual stocks of the portfolio.
[0008] Thus, there is a need for a system and method that evaluates
the performance of a mutual fund, or other investment portfolio,
that uses the financial data available for the individual stocks
within the portfolio.
[0009] Buyside Research of Darien, Connecticut has developed a
computer program (referred to herein as the "Stock System")
including text and screen displays which graphically compare the
performance of one company with its six closest competitors using
fundamental financial data. In June of 1999, these graphic
comparisons became commercially available over the Multex system
(www.multex.com), which now distributes "Wall Street" research to
more than two million users. The present invention combines unique
processes of this Stock System with other unique processes in order
to aggregate the stock measures for mutual funds or investment
portfolios.
[0010] Because financial measures and aggregate financial measures
of companies are being compared, special processes must be employed
to insure that these comparisons are made over similar time periods
and are as inclusive as possible. The present invention features
unique processes to improve comparability and inclusiveness.
SUMMARY OF THE INVENTION
[0011] According to an exemplary embodiment of the present
invention, a method and system are provided wherein a fundamental
analysis is performed on the stocks in a financial portfolio, such
as a mutual fund or pension fund, to measure the performance of the
portfolio. First, the data used to perform the analysis are
extracted from a securities (e.g., stock) database that contains
information from, for example, company disclosures. A first
comparison process filters out any financial data from companies
that have fiscal years that are not approximately one year in
length. A second comparison process is then executed to convert the
data for any fiscal quarter/year period into a comparable calendar
quarter/year period. Once these two processes (collectively,
"fiscal realignment") are completed, "fundamental measures" for
each company are calculated based on formulae commonly used
throughout the investment community. These could include, but are
not limited to, sales growth rates, earnings per share growth
rates, debt:equity ratios, and other measures. The fundamental
measures used in the present invention use rates and ratios derived
from two values ("base values"): a beginning value and an ending
value (in the case of compound annual growth rates); or a numerator
and denominator (in the case of quarter-to-quarter earnings percent
changes). Since there is a possibility that one of these base
values can be negative, the present invention uniquely uses these
two base values, rather than a derived rate or ratio, to attain
"negative base number inclusions."
[0012] Each week, new data are provided for the securities database
and the funds database to update underlying financial data and fund
holdings. Fund data are lists of the most recent information about
mutual funds and their stocks; there are, for example,
approximately four thousand equity mutual funds for which
information is available. The holdings of a mutual fund can be
associated with the underlying financial data for each holding
using, for example, the CUSIP number, now available in stock and
fund databases. The CUSIP number used in both databases provides
the link between the databases.
[0013] Weights for each stock in each portfolio can be calculated
based on the market value of that stock divided by the total market
value of the stocks in each portfolio (e.g., the market value of
any one stock is divided by the market value of all stocks). Since
there is a possibility that one of the base numbers can be
negative, the weights are multiplied by the base numbers (e.g.,
from the stock database) of each stock that have been subject to
fiscal realignment. Summing the products of these multiplications
allows for negative base number inclusion and aggregated values for
the fundamental measures. Any fundamental measure listed in Table 1
below can be aggregated. For example, an aggregate EPS growth rate
can be produced for an investment portfolio.
[0014] With these aggregate fundamental measures, portfolio
performance can be measured using the same fundamental benchmarks
which are widely employed for common stock analyses. Measures
deemed essential for fundamental analysis of one stock are presumed
to be at least as valid for a group of stocks. By employing fiscal
realignment, the system and method according to an embodiment of
the present invention provide results which are more comparable
than any other portfolio aggregates which exist today. By employing
the unique negative base number inclusions process, the results are
far more inclusive than any other existing evaluation
approaches.
[0015] Additional objects and advantages of the present invention
will be set forth in the description which follows. The objects and
advantages of the invention may be realized and obtained by means
of the instrumentalities and combinations particularly pointed out
in the appended claims.
BRIEF DESCRIPTION OF THE DRAWINGS
[0016] The accompanying drawings, which are incorporated in and
constitute a part of the specification, illustrate an exemplary
embodiment of the present invention.
[0017] FIG. 1 illustrates an exemplary series of operations
performed by computer software for evaluating an investment
portfolio according to an exemplary embodiment of the present
invention;
[0018] FIG. 2 illustrates an exemplary analysis of an investment
portfolio according to an embodiment of the present invention;
and
[0019] FIG. 3 illustrates a system for evaluating an investment
portfolio according to an exemplary embodiment of the present
invention.
DETAILED DESCRIPTION
[0020] FIG. 1 illustrates an exemplary method for transforming data
from stock portfolios or mutual funds into a format suitable for
fundamental analyses according to an exemplary embodiment of the
present invention.
[0021] For example, the process starts when the Stock System
creates a securities database for the Fund System. For the purposes
of discussion herein, processing of the underlying financial data
for a company is referred to as being performed by a "Stock System"
and the use of the processed data to evaluate a portfolio (e.g., a
collection of stocks) is referred to as being performed by a "Fund
System." It should be understood that the Stock System and the Fund
System can be implemented as separate systems (e.g., separate
computer systems) or can be separate processes carried out by a
particular computer system.
[0022] The Stock System accesses a suitable commercially available
database containing the desired underlying financial data. For
example, at 1010 the process begins with accessing a commercially
available database of information from 10-Ks and 10-Qs. Examples of
these databases are Standard and Poor's Compustat and Market
Guide's Investment Manager. At 1020, the desired financial
information can be extracted from company disclosures such as
balance sheets, income statements, and cash flow statements
contained in the database. Specific data taken from a balance sheet
(and stored in the financial data database) can include, but are
not limited to, liquid assets, investments, inventories, fixed
assets, intangible assets, short-term liabilities, long-term debt,
and leases. Specific data taken from an income statement can
include, but are not limited to, sales, expenses, and net income.
Specific data taken from a cash flow statement can include, but are
not limited to, cash receipts and cash payments.
[0023] At 1020, the relevant data for each company are extracted
from the database. In an exemplary embodiment, the data for all
companies in the database are used while in alternative
embodiments, the data for only particular companies of interest can
be used. For example, weekly batch processing of financial data for
numerous companies can be performed or real-time processing of
financial data for particular companies can be performed based on
the needs or desires of the user.
[0024] The extracted financial data form base numbers used to
derive fundamental investment measures; for example, the extracted
data could include earnings per share ("EPS") for every
quarter/year and assets for every quarter-end/year-end. The data
for each company are identified within the database using a unique
CUSIP number as is known in the art. The database at 1010 contains,
for example, historical quarterly/annual data dating back ten years
or more. As is known in the art, these commercially available
financial databases are updated daily or weekly and include the
financial histories for more than ten thousand companies.
[0025] At 1030, the first part of the fiscal realignment process
according to an embodiment of the present invention is initiated on
the data set accessed or extracted from the financial database. The
purpose of this first comparison process is, for example, to
eliminate companies that do not have comparable lengths of time in
their fiscal years. For example, a company may not have enough
historical financial information for a particular time period, such
as five years or one year, because of mergers or divestitures, or
the company may not have been in existence for the desired time
period.
[0026] Maximum and minimum limits should be established for the
fiscal years to provide a meaningful financial analysis. If, for
example, a company with a December fiscal year-end begins business
in June, its first year of business will be a six month period--not
a twelve month period. To compare that company's sales with another
company which was in business for the entire twelve month period of
that year would be inappropriate. Because companies are compared
over a number of different time periods, such as five years, yearly
or quarterly, the analysis should proceed with the time periods
being similar. The maximum limit for a fiscal year has been set at,
for example, thirteen months or fifty-four weeks, and minimum limit
for a fiscal year has been set at, for example, eleven months or
fifty weeks. Hence, for fundamental measures over a five year
period, data for companies which exceed the maximum or minimum are
excluded from the securities database. Small adjustments can be
made to these maximum and minimum limits as desired.
[0027] At 1040, the second part of the fiscal realignment process
is initiated. The second comparability process serves to, for
example, convert all fiscal years and quarters into comparable
calendar years and quarters to improve the accuracy of the
analysis. The analysis may make comparisons for, for example, a
five year, annual, year-to-date or quarterly period.
[0028] Two steps are used to complete the second part of the fiscal
realignment process: (1) derive a calendar-based date of the fiscal
year/quarter and (2) realign the fiscal period into comparable
calendar periods.
[0029] Step 1: Deriving a Calendar-Based Date of the Fiscal
Year/Quarter
[0030] If the last day of the fiscal period for a company ends
between the first and fifteenth of a month, then the fiscal month
is changed to the previous month. For example, if the last day of
the fiscal period is April 10th, then the fiscal month is changed
to March. If the last day of the fiscal period is April 16th,
however, then the fiscal month remains the same. If, as part of
this calculation, the fiscal month is January, then the fiscal
month and year are changed to the last month of the previous year.
Thus, for instance, if the date is Jan. 13, 2001, then the fiscal
month and year are changed to December 2000.
[0031] Step 2: Realigning the Fiscal Period into Comparable
Calendar Periods Using the Dates Derived in Step 1:
[0032] For calculations of values covering a five year period, if
the year-end fiscal month for a company ends between July and
December, the derived calendar year for that company is equivalent
to the fiscal year, otherwise the calendar year is considered to be
one year less than the fiscal year.
[0033] For calculation of values for quarter, annual, and year to
date period, if the month for any fiscal quarter-end is January,
April, July or October, then the fiscal quarter is changed to the
previous calendar quarter. If the month for any fiscal quarter-end
is other than one of these months, then the month remains the same
subject to Step 1 described above. For example, a fiscal quarter
ending on February 2.sup.nd becomes the derived fourth calendar
quarter of the prior year (after both Steps 1 and 2 have been
executed). In effect, for any given derived calendar quarter, all
realigned companies should have at least two fiscal months
coinciding with the three months of the derived calendar
quarter.
[0034] At 1050, the calculations of the fundamental measures based
on data accessed or extracted at 1020 are made. These fundamental
measures, subject to changes or additions, are listed in Table 1.
TABLE-US-00001 TABLE 1 Growth Sales Growth Rate Earnings per Share
(EPS) Growth Rate Common Equity per Share Growth Rate Profitability
Return on Equity Profit Margins Capital Structure Equity: Assets
Interest Coverage Cash Flow: Debt Service Valuation Price: Earnings
Price: Book
[0035] Thus, once the financial data for particular companies have
been through the realignment process as described above, the
desired fundamental measures can be calculated using the aligned
data. The financially realigned data can be stored and are referred
to herein as the "Securities Database." At 1060, the Securities
Database containing the values calculated at 1050 are ready to be
applied as an input for the Fund System.
[0036] For the Fund System, for example as carried out by a
conventional computer system, the process begins with a
commercially available database at 1070 containing information
about the stocks in mutual funds. Examples of these databases are
Financial Data Concept's fund stocks and AMG Data Service's fund
stocks. The financial data accessed or extracted at 1080 can
include a number of data for the portfolio and for the stocks
therein. Data for the portfolio could include, for example, the
investment objective, the fund type (bond, money market, etc.), net
asset values, and the holdings of the fund, etc. For each stock
(e.g., holding) in the fund, the data also includes the CUSIP of
the stock, the number of shares, price, the market value, etc.
[0037] At 1090, weights are determined for all fund stocks with
valid base values (e.g., companies that were not excluded by the
fiscal realignment process and which have reported both base values
at the time of the computer run). Thus, for example, when
calculating the quarter-to-quarter growth rate for EPS, if there
are no numerical values for both quarters, no weight will be
calculated, and the stock will not be included in the portfolio
aggregate. The weight of each stock is determined by, for example,
dividing the value of the stock (with two valid base values) by the
sum of the value of all similar stocks (with two valid base
values). For example, in a mutual fund, the market value of the
stock within the mutual fund is the quantity of shares multiplied
by the share price. This value is divided by the total market value
of all stocks in the mutual fund to obtain each security's weight.
The sum of the weights always equals one.
[0038] At 1100, the fiscally realigned fundamental measures, e.g.,
the rates and ratios, for each stock in the fund are extracted from
the Securities Database. These measures include the items noted in
Table 1 as well as the base values used to calculate the
fundamental measures.
[0039] At 1110, the Fund System aggregates the fiscally realigned
data for all companies in the portfolio, thereby uniquely including
all negative base numbers, to calculate weighted averages for the
portfolio as described further below.
[0040] At 1120, the aggregated data representing an evaluation of
the investment portfolio from the Fund System can be inputted
(e.g., stored) into a funds database for subsequent retrieval and
use.
[0041] As is known in the art, fundamental measures are valid in
financial calculations only if both of the base values of the
calculated rate/ratio are positive. For example, if the EPS
declined from $0.10 to $0.09, the EPS growth rate is -10%; the base
number $0.09 and the base number $0.10 are positive. However, if
the EPS declined from $0.10 to -$0.01, the rate is undefined or not
meaningful because the base number, -$0.01, is a negative value.
This is consistent with the standard practice used in financial
analysis which is to exclude rates with negative base numbers.
[0042] For many fundamental measures, for a large number of
securities, say as many as might be found in a mutual fund, there
are likely to be a number of undefined rates and ratios because of
negative base values. Without the negative base number inclusion
process according to an embodiment of the present invention, these
undefined rates/ratios would not be included in any weighted
average portfolio aggregate. Excluding securities with such
negative financial datum results in a misrepresentation of the
portfolio aggregate. By excluding these negative variable inputs,
aggregates are incorrectly skewed to positive results. As a result
of this conventional practice, rates and ratios designed to foster
comparisons are actually misleading investors in these
circumstances.
[0043] According to an embodiment of the present invention, an
alternative calculation for input variables is provided which
allows the inclusion of negative values for individual stocks in an
investment portfolio. This alternative calculation includes all
securities in a portfolio; the portfolio aggregate, therefore, is
more inclusive and thus more comparable. If these undefined rates
and ratios are to be included in the weighted average aggregate,
the negative base number inclusion process must be applied. For
example, rather than multiply each stock's weight by the calculated
rate/ratio, the weight is first multiplied by the base values
separately for all holdings in a portfolio. The weighted base
values are then summed. The formula previously applied to the base
values is then applied to the two aggregated and weighted
totals--creating a portfolio aggregate which includes previously
undefined rates/ratios. (This, of course, presumes that neither of
the two weighted totals will be negative; if one of the totals is
negative, then the aggregate must be recalculated excluding
rates/ratios with negative base values.)
[0044] FIG. 2 illustrates an example of the exemplary method
applied to a mutual fund portfolio in which a year to year analysis
has been performed on the holdings of the mutual fund. This FIG. 2,
for illustrative purposes only, features quarterly statements filed
through the first quarter of 2001.
[0045] As shown in FIG. 2, the fiscal realignment process has been
executed on each stock 2020 using the procedures described above so
that only the companies having sufficient fiscal year data are
included. For example, if any fiscal year for each company of stock
2020 is less than fifty-two weeks, no data from that company is
included in the analysis because all of the fiscal cycles are
between fifty to fifty-four weeks, or eleven to thirteen months, in
length.
[0046] The second step of the fiscal realignment process aligns the
fiscal periods for each company of stock 2020. For example, the
respective fiscal quarter-end dates for companies are used to align
quarterly periods so that the base values cover approximately the
same three-month period or at least there are two months in common
for the aligned quarters.
[0047] The exemplary mutual fund includes stocks: 2020a, 2020b, to
2020r. Associated with each stock 2020 are, for example, fields
2052-2061 containing: value 2052; weight 2053; QTR End 2054 (the
date of the most recent quarter); base value, 2055 (QTR-t for EPS
for the fiscally adjusted first quarter of 2000); base value.sub.2
2056 (QTR t-4 for quarterly EPS 1 year before, for the fiscally
adjusted first quarter, 2000); growth rate 2057; weight times base
value.sub.1 2058 and weight times base value.sub.2 2059. In this
case, the fiscally aligned base values are being used to create an
aggregate EPS. Any other base values, such as those listed in Table
1, also could be used as desired.
[0048] Note that for example, Cisco Systems, Inc. 2020c, has a QTR
End 2054c of Jan. 27, 2001. Under the first realignment process
this date is realigned to the fourth quarter of 2000. Thus, base
value.sub.1 2055c becomes not available, or n/a because only data
for the fiscally adjusted first quarter of 2001 will be compared
and therefore used in the calculation. This stock 2020c is excluded
from the aggregate because it does not have base values for both
base value.sub.1 2055c and base value.sub.2 2056.
[0049] The weight 2053 for each stock 2020 is calculated by
multiplying the market price by the share quantity for all stocks
with valid values for both base value.sub.1 2055 and base
value.sub.2 2056 and dividing these products by the total market
value of all stocks with base values for both base value.sub.1 2055
and base value.sub.2 2056. The sum of all weights times base
value.sub.1 2058 becomes the aggregate numerator 2060; the sum of
all weights times base value.sub.2 2059 becomes the aggregate
denominator 2062. The portfolio aggregate 2064 is the quotient. In
this case the portfolio aggregate 2064 for EPS is -55.4%, that is
the weighted average quarterly earnings of all these stocks has
declined 55.4% from the first quarter of 2000 to the first quarter
of 2001.
[0050] Also note that for example, Veritas Software Corp. 2020j has
negative base values for base value.sub.1 2055j and base
value.sub.2 2056j. Nevertheless, the values are still factored into
the aggregate numerator 2060 and the aggregate denominator 2062.
Conventional analyses would have excluded Veritas Software Corp.
2020j.
[0051] Still referencing FIG. 2, financial rates are typically
annual expressions; that is, they represent the rate expressed as a
compound annual rate. According to an embodiment of the present
invention, quarter versus quarter, year-to-date versus year-to-date
and year-to-year rates are calculated by simple division because
the time period is a year; rates for periods greater than or less
than a year can be based on the equation P(1+r).sup..tau.=F,
[0052] where [0053] P=the earliest base number [0054] r=the rate of
return, compounding annually [0055] .tau.=the amount of time
between the first and second base value, expressed in years [0056]
F=the latest base number
[0057] Financial ratios, such as an equity:assets ratio, refer to a
point in time and are calculated by simple division.
[0058] Having calculated portfolio aggregates as described above, a
measure of portfolio stability also can be generated to provide an
investor with an indication of the continuity of investment
holdings, which serve as the bases for the aggregates in the
portfolio. According to an embodiment of the present invention, a
stability calculation is made based on: (1) the number or value of
the stocks eliminated (e.g., sold) from the investment portfolio
and (2) the number or value of new stocks purchased in the
portfolio. An example of this calculation applied to a mutual fund
is shown in Table 2. TABLE-US-00002 TABLE 2 Mutual Fund, e.g.,
Putnam New Opportunity - A (1) 189 stocks with a starting value of
$33,443,626,000.00 on Dec. 31, 1999 (2) 33 positions reduced with a
value of $1,362,148,118.16 on Jun. 30, 2000 (3) 67 stocks sold out
with a value of $7,060,969,940.68 on Dec. 31, 1999 (4) 100 total
sold or reduced (5) 89 positions increased with a value of
$5,158,208,217.76 on Jun. 30, 2000 (6) 56 new names with a value of
$5,953,638,666.67 on Jun. 30, 2000 (7) 145 total increased or added
$11,111,846,884.43 (8) 123 name changes (sold out & new names)
(9) 178 stocks with an ending value of $36,131,469,000.00 on Jun.
30, 2000
[0059] Mutual funds are, for example, required by the Securities
and Exchange Commission to report their holdings every six months.
The Fund System or the database accessed by the Funds System
maintains a historic record of the holdings of mutual funds. Using
the most recent holdings records and the previous holdings records
for each fund, a stability calculation is made as follows:
[0060] Determine the initial number of stocks and their value at a
beginning date (line 1).
[0061] Determine the number of stocks completely eliminated from
the portfolio over, for example, a six month period and the value
of the eliminated stocks as of the beginning date (line 3).
[0062] Determine the number of new stocks (e.g., new names) added
to the portfolio over, for example, the six month period and the
value of the new stocks as of the ending date (line 6).
[0063] Sum the number of stocks on lines 3 and 6, or sum the values
on lines 3 and 6; and note the total(s) on line 8 (in this example
the number of stocks completely sold from or newly added to the
portfolio were totaled).
[0064] Divide the sum on line 8 (either number of issues or value)
by its corresponding value (either number of issues or value) on
line 1. This value is the stability ratio for the portfolio. A
lower value represents a more stable portfolio.
[0065] The above described portfolio aggregates and stability ratio
can be used to compare different portfolios.
[0066] Comparisons of portfolios can be for example, made using the
following four-step process: [0067] 1. Group the portfolios based
on similar investment objectives (e.g., growth, income, etc.). This
initial grouping will be used for all aggregates in the following
three steps. However, the stability ratio applies to all portfolios
regardless of investment objective; hence steps 2 & 3 are
performed on the entire population of portfolios, and thus it is
not necessary to group the portfolio based on investment objective.
[0068] 2. Rank portfolios for each aggregated fundamental value and
for the stability ratio from highest to lowest [0069] 3. Group the
ranked portfolios into a frequency distribution (e.g., quartiles,
quintiles, deciles, etc.) [0070] 4. By selecting one or more
aggregated fundamental value(s), to include the stability ratio,
investors may assess what funds are in which segments of the
combined frequency distributions.
[0071] For example, consider a comparison made between fourteen
growth funds. Annual compound growth rates (ACGR) for sales and
earnings per share are calculated for the five years ending 2000
using the method according to an embodiment of the present
invention; these compound growth rates are shown in Table 4 and 5
respectively and arranged in quartiles. It should be noted that
other fundamental values besides the annual compound growth rates
for sales and earnings per share can be used, such as the values
identified in Table 1 above. TABLE-US-00003 TABLE 4 Sales from Dec.
31, 1995 to Dec. 31, 2000 ACGR % Highest Quartile 1 PUTNAM NEW
OPPTY; A 64.8 2 PUTNAM VISTA; A 50.6 3 MSDW AMER OPPTYS; A 31.9 4
FIDELITY BLUE CHIP GROW 24.9 Quartile # 3 5 PUTNAM INVESTORS; A
24.9 6 CONTRAFUND PORTFOLIO 24.1 7 FIDELITY CONTRAFUND 23.0 8 T
ROWE PRICE BL CHIP; ADV 22.9 Quartile # 2 9 VANGUARD GROWTH INDX;
INS 21.9 10 LEGG MASON VALUE TR; NAV 21.6 11 FIDELITY MAGELLAN FUND
21.1 Lowest Quartile 12 CREF STOCK ACCOUNT 21.0 13 AIM: VALUE; A
15.9 14 DAVIS NY VENTURE; A 14.9
[0072] TABLE-US-00004 TABLE 5 EPS from Dec. 31, 1995 to 12/31/9500
ACGR % Highest Quartile 1 PUTNAM VISTA; A 50.6 2 AIM: VALUE; A 29.8
3 DAVIS NY VENTURE; A 26.1 4 LEGG MASON VALUE TR; NAV 26.0 Quartile
# 3 5 FIDELITY CONTRAFUND 25.9 6 CONTRAFUND PORTFOLIO 25.8 7 T ROWE
PRICE BL CHIP; ADV 19.8 8 FIDELITY MAGELLAN FUND 18.7 Quartile # 2
9 MSDW AMER OPPTYS; A 17.9 10 FIDELITY BLUE CHIP GROW 16.4 11
PUTNAM INVESTORS; A 15.5 Lowest Quartile 12 VANGUARD GROWTH INDX;
INS 15.4 13 CREF STOCK ACCOUNT 12.3 14 PUTNAM NEW OPPTY; A -4.9
[0073] Once the ACGRs are computed, the fourteen growth funds are
ranked from highest to lowest and then divided into a frequency
distribution such as quartiles, as described in step 3.
[0074] According to an embodiment of the present invention, the
portfolios (e.g., funds) can be categorized into four combinations
depending on which quartile they belong. For example, possible
combinations are: high sales and high earnings; high sales and low
earnings; low sales and high earnings; and lows sales and low
earnings.
[0075] Also according to an embodiment of the present invention,
the stability ratios can be calculated for each of the funds. The
portfolios can then be ranked from highest to lowest and then
divided into quartiles based on their stability ratios. For
purposes of this example, the calculation of the stability ratio is
not shown for each fund but would be carried out as described
above. Combining the stability ratio and the results shown in
Tables 4 and 5 yields Table 6, which presents a multivariate
analysis of the fourteen mutual funds. TABLE-US-00005 TABLE 6
Sales/EPS ACGR & Last Six Months of Stability 5 Year STABILITY
RATIO ACGR % HIGHEST LEVEL 3 LEVEL 2 LEAST Growth Funds Sales EPS
19-53% 58-72% 73-96% 98-165% TOTAL High Sales/ 30 31 -- 1 1 2 4
High Earnings High Sales/ 37 11 -- 2 1 1 4 Low Earnings Low Sales/
18 25 3 -- 1 -- 4 High Earnings Low Sales/ 22 14 1 1 -- -- 2 Low
Earnings Total Number 14 of Funds
[0076] For example, in Table 6, among the fourteen growth funds,
there are four funds that are classified as highest in both sales
and earnings growth. In this example, the top two quartiles of
Tables 4 and 5 make up what constitutes "high" for sales and
earnings respectively. Similarly, "low" sales and growth values are
made up of the two lower quartiles. For a fund to be categorized in
the "high sales/high earnings" category, it must be in the
intersection of high sales and high earnings. For example, the
following funds fall into the category of high earnings and high
sales simultaneously: Putnam Vista; Contrafund Portfolio; Fidelity
Contrafund; and T Rowe Price Bl Chip.
[0077] On average, the four funds in this category have holdings
with sales that grew at an average of thirty percent per annum
compound and earnings at an average of thirty-one percent per
annum. The stability ratio is divided into four quartiles, or
levels, based on their percentage of turnover. In the example shown
in FIG. 6, the stability ratio levels are shown as percentage
ranges. For example, if a portfolio has a hundred holdings and
during the period of evaluation twenty stocks were added and twenty
stocks were sold, then the percentage equals ((20+20)/100) which is
0.4 or 40%. One of the four funds is in the upper-middle quartile
of stability (LEVEL 3); one is in the lower-middle quartile of
stability (LEVEL 2); two are in the lowest quartile (LEVEL 1).
Therefore, it can be concluded that the fund in the second quartile
of stability (Level 3) (represented by the bolded figure) has the
best records for earnings and sales growth--along with some measure
of stability in the holdings of the fund.
[0078] FIG. 3 illustrates a system for evaluating an investment
portfolio according to an exemplary embodiment of the present
invention as described above. The exemplary system includes, for
example, a computer system 3000, a fund database 3500 and a stock
database 3600. The computer system 3000, could be, for example, a
microprocessor based server such as SUN WORKSTATION or WINDOWS NT
server or other computer system having suitable processing power
and storage. Computer system 3000 includes, for example, a central
processing unit 3010, random access memory 3020, input/output
device(s) 3030 and display 3040 coupled via a conventional bus
3050. Also coupled to bus 3050 is a storage device 3060 such as a
hard disk drive.
[0079] Memory 3020 could include, for example, various modules
necessary to carry out the method according to an exemplary
embodiment of the present invention as described above. Examples of
modules stored in memory 3020 are executable software code to
implement the functions of a Fund System 3022 and a Stock System
3026. Alternatively, the Fund System 3022 and Stock System 3026 can
be implemented in separate computer systems that are suitably
connected. The output of Fund System 3022 (e.g., the aggregated
portfolio measurement value using fiscally realigned data and
negative base number inclusions) can be stored, for example, in an
output database 3024. The output of Stock System 3026 is, for
example, data that have been processed through the fiscal
realignment process and can be stored in aligned stock database
3028 for use by the Fund System 3022.
[0080] Fund database 3500 can be, for example, any database that
contains fund information, e.g., the holdings of a mutual fund or
investment portfolio and the CUSIP numbers for the holdings and is
accessed by the Fund System 3022 through a suitable communications
link. Likewise, stock database 3600 can be any database that
provides the underlying financial data for publicly or privately
held companies and is accessed by the Stock System 3026 through a
suitable communications link. Both the fund database 3500 and the
stock database 3600 can be implemented by commercial content
providers of these data as is known in the art.
[0081] A user 3800 can, for example, access the computer system
3000 through a dedicated communications link such as T1 or T3 or
via a public network such as the Internet. If, for example, the
user 3800 would like to compare certain investment portfolios, the
user would submit the request to the computer system 3000 by
providing the portfolios to be compared and the type of fundamental
financial data to be used for the comparison. The computer system
3020 can provide the requested information in real time or have the
requested information processed ahead of time and retrieved from a
storage device.
[0082] Additional advantages and modifications will readily occur
to those skilled in the art. Therefore, the present invention in
its broader aspects is not limited to the specific details and
representative devices shown and described herein. Accordingly,
various modifications may be made without departing from the spirit
or scope of the general inventive concept as defined by the
appended claims.
* * * * *