80% of S&P 500 Value is Intellectual Property; New ETF Tracks This

Within the last quarter century, intellectual capital has emerged as the leading asset class. Three decades ago, factories, equipment and inventory made up over 80% of the stock market's value. As the U.S. has evolved from an industrial economy to a knowledge economy and into the information age, those tangible assets account for only 20% of the S&P 500's value. The other 80% is in intellectual property, such as patents, according to investment firm Ocean Tomo, reports IBD.

"When you think about the United States, we've outsourced manufacturing to China. We've outsourced services to India. What's left? Knowledge. And that knowledge is protected by patents," said Keith Cardoza, managing director of Ocean Tomo, a Chicago-based investment banking firm that specializes in intellectual property. 

Last week Ocean Tomo launched the Claymore/Ocean Tomo Patent ETF (AMEX:OTP), which tracks the 300 stock index. The index comprises 300 companies deemed to have the greatest patent value relative to their book value. 

Ocean Tomo uses its (patented) PatentRatings software to calculate the relative attractiveness of the more than 4 million patents that have been issued by the U.S. Patent and Trademark Office since 1983 in addition to the 4,000 new ones issued every week.

A hypothetical backtest over the past 10 years found that the patent index would have outperformed the S&P 500 by an average 300 basis points a year.

Exxon Mobil stands at the top of the patent heap in the ETF, as its intangible assets account for 71% of the $445 billion oil company, according to Ocean Tomo.

The term "intellectual capital" refers generally to traditional intellectual property assets - patents, trademarks and copyrights. Ocean Tomo includes within the definition of "intellectual capital", special client intangible assets, especially corporate and governmental preference rights.

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