|Click here for larger image.|
In late 2006, I wrote favorably about the then-new Claymore Ocean Tomo Patent ETF ( OTP). The fund invests in 300 companies with the highest patent ratings, on the basis of a proprietary scoring model of the portfolios of the 1,000 largest U.S.-traded companies, including American depositary receipts. The big theme is that intellectual property is more valuable than hard assets such as plant and equipment. On that basis, OTP is going to be a large-cap vehicle that will usually tilt toward growth. As you can see from the chart, OTP has blown away the S&P 500 since its inception and has also meaningfully outperformed since the October peak (OTP is down 13%, and the index is down 17%):
I believe the primary reason for the diversion is that OTP has 2% in financial stocks compared with 14% for the S&P 500 (down from 20% when OTP first listed). Most of the stock market's deterioration since then has occurred in the financial sector, so it is only logical that a broad-based fund that is underweight in the sector would have done much better. Technology is the largest sector in OTP at 22.81%, followed by health care at 20.11%, energy at 17.21% and industrials at 13.78%. Sector weighting gets much smaller from there. Most of the individual holdings will be recognizable names. The top three are General Electric ( GE), Microsoft ( MSFT) and Procter & Gamble ( PG). As mentioned above, the fund also owns ADRs. The current foreign allocation is 17%. The weak dollar over the past couple of years has given a little bit of a tailwind to OTP.