Investment Classification System Strategy-Based Asset Categorization
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Solution Overview
Problem
The asset management industry's reliance on the size/value-growth characteristic grid and Returns Based Style Analysis (RBSA) constrains equity managers, leading to suboptimal equity selection, strategy drift, and reduced investor returns, as these methods do not provide the diversification and risk reduction benefits of asset classes and limit the understanding of equity strategies.
Innovation Solution
A system for asset manager categorization and portfolio selection based on investment strategies, which includes determining a risk-return efficient frontier, identifying tangency portfolios, and providing users with investment strategies that align with their selected risk and return objectives, allowing for better equity performance and reduced strategy drift.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Stability of the object's composition
If managers are constrained by the nine box grid classification system, then classification consistency is improved, but investment performance deteriorates by an estimated average 300 basis points annually
Solution Approach 1:
The patent extracts managers from the constraining nine box grid classification system and reclassifies them based on their actual investment strategies. This removes the harmful constraint while maintaining a structured classification approach, allowing managers to be evaluated on their true investment methodology rather than forced into predetermined boxes that limit their stock selection flexibility.
Solution Approach 2:
Instead of classifying managers by the traditional size/value-growth characteristics that constrain them, the patent inverts the approach by classifying managers based on their investment strategies (e.g., quality, value, growth, blend). This inversion allows managers to maintain classification consistency while achieving superior investment performance by selecting stocks based on strategy rather than being forced into limited universe constraints.
2Device complexity
If managers are constrained to specific box categories, then classification simplicity is improved, but the available universe of equities reduces to a fraction
Solution Approach 1:
The patent changes the classification parameters from traditional size/value-growth characteristics to investment strategy-based categories. This parameter change maintains classification simplicity while dramatically expanding the effective investment universe, as strategy-based classification allows managers access to the full equity market rather than being restricted to a fraction of stocks that fit predetermined box categories.
3Stability of the object's composition
If managers are forced to pick stocks from a reduced subset, then box consistency is improved, but strategy consistency deteriorates
Solution Approach 1:
The patent extracts the harmful constraint of box category requirements and reclassifies managers based on their actual investment strategies. This allows managers to maintain strategy consistency by selecting stocks based on their investment methodology rather than being forced to conform to predetermined box categories that compromise their strategic approach.
4Ease of operation
If the nine box grid is used for classification, then industry standardization is improved, but investor returns are lowered
Solution Approach 1:
The patent changes the classification parameters from traditional size/value-growth characteristics to investment strategy-based categories. This parameter change maintains industry standardization through a structured classification system while simultaneously improving investor returns by enabling managers to select from the full equity universe based on their investment strategies rather than being constrained to a fraction of stocks.
Data Source
AI summary
The present invention is directed to an asset classification system based on investment strategy. The investment strategies include capitalization strategy, competitive position strategy, economic conditions strategy, future growth investment strategy, market condition strategy, opportunity strategy, profitability strategy, risk strategy, social considerations strategy, and valuation strategy.