Robert Arnott, chairman of Research Affiliates, has won a U.S. patent for his fundamental indexing methodology, based on the size of a company rather than its market capitalization.
Research Affiliates’ more than 100 indexes eschew traditional indexes, which overweight what it says are often “overpriced” securities and underweight “underpriced” securities, thereby costing investors 2% to 4% lower returns annually.
Instead, Research Affiliates considers a company’s cash dividends, free cash flow, total sales and book equity value.
“Our business model differs from most registered investment advisors in that our core business is developing and licensing new product ideas,” Arnott said. “Unlike most asset managers, we have only our ideas to sell [yet] we can protect these ideas as trade secrets or with patents.”