'Patent' ETF a Way to Play Large-Cap Growth

In theory, this combination could deliver an extra 3.5% to 4% per year of return over just holding SPY. You can decide for yourself if the concept is valid or whether the back test makes sense to you, but these are broad-based index funds, so realistically, a worst-case scenario, if my idea is completely upside down, is a lag of a few percentage points.

One caveat: I mentioned the back test outperformed the S&P 500 by 3 percentage points annually for 10 years. However, it lagged the S&P 500 for the last five-, three- and one-year time periods. This may actually strengthen the case for OTP as a large-cap growth proxy, as the iShares S&P 500 Growth Index Fund also lagged the broader S&P 500 for those same time periods.

Another big strike against OTP in this role might be in the details of the back test, with most of the success coming in just three years: 1999, 2000 and 2003. Candidly, I am not sure what to make of this. It could be argued that the strategy is inconsistent, so perhaps another themed ETF could be better.

The more important thing to me is that as new funds come, they may or may not add value, but in the case of OTP, just trying to guess what patents might do for your portfolio might miss the benefit that a new fund could bring.

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