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

A few days ago I wrote about the new Claymore/Sabrient Defender ETF (DEF Quote) as having a secondary effect of being a proxy for large-cap value. That same day, Claymore listed the Ocean Tomo Patent 300 ETF (OTP Quote), which could be a proxy for large-cap growth.

The big-picture idea behind Ocean Tomo Patent 300 ETF is that as the U.S. economy has evolved, there is now more economic value to be derived from intangible assets, like patents, than from tangible assets, like plants and equipment. Without being an expert on this, it does seem intuitive that the idea at least has some merit.

As you might expect, the back test also supports the idea. Over the last 10 years, the patent weighting has averaged 3 percentage-point better returns annually over the S&P 500, with a 92% correlation to the index. The methodology assesses the economic value of a company's patent portfolio, then assigns a score to that portfolio and ranks it with other companies. The universe of companies is the 1,000 most-liquid stocks, which creates a tilt to large-cap.

When I first heard about this fund, it occurred to me that financial companies don't have much in the way of patents, and sure enough, I was told in an interview with Ocean Tomo that there is only one stock from that sector in the fund. ...