Ocean Tomo LLC is Chicago-based investment banking boutique that specialises in intellectual capital equity and patents’ financial evaluation. Last April, it organised a first live auction of several patents. And now, earlier this week, Ocean Tomo launched an Intellectual Property index for the US market, Ocean Tomo 300 Patent Index.
The index only covers US stocks. It would be interesting to look at a possibility of constructing a similar index for the UK market, which by now has a considerable number of Intellectual Property-based companies. For instance, the share price of IP Plc, which can be used as a useful proxy for university technology transfer listings, has outperformed the FT technology index (FT 250) by 90 per cent over the past five years.
On the other hand, the share price performance of established companies such as BTG plc, the pioneer IP company, or of newcomers such as Imperial Innovations Group, listed last July has been considerably less impressive. In this segment, variability and disparity of performance are the rule rather exception.
The Tomo index represents a diversified portfolio of 300 companies that own valuable patents and whose patent value is high relative to overall market capitalisation.
The value of patents is determined by the proprietary PatentRatings software (on which a patent is pending). In order to validate the index, Ocean Tomo ran a historical simulation, which demonstrated that over a period of ten years (September 1996 – September 2006), its index would have outperformed the broad market index SP 500 by 3.1 per cent per year, resulting in cumulative relative gain of over 70 per cent.
The index is tracked daily by the American Stock Exchange and published not only by Amex but by all major financial data sources, including retail online financial portals. It will definitely be of interest to research analysts looking for lesser-known companies with high potential. Investment managers are likely to use the index as a source of more specialised investment strategies.
As it is the index sits in an uncomfortable middle between pure passive investment approached (S&P 500 or NASDAQ100) and active sectoral or themes strategies, which would rely on much smaller set of equities, which account for the lion’s share of outperformance. It would be interesting to see whether investment managers will launch an ETF (exchange-traded fund) based on Ocean Tomo index, and how successful such an ETF would be.
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