OTAM's quantitative IP investment program has the capability to create an IP-based absolute return or benchmarked fund for any size, style, and sector criteria specified. In partnership with IPXI, Ocean Tomo has created IP-enhanced indexes for S&P 500 and 1500, NASDAQ, and the Wilderhill Clean Energy Index. In each case, OTAM's enhanced index products outperform their benchmark indexes with greater information ratio.
The enhanced indexes are constructed using a 130/30 ratio. Each starts with the underlying index weights, and then the weights are reduced by 30% in names with relatively weaker IP signals and increased by 30% in names with stronger IP signals. How much is added or reduced for an individual name is proportional to the IP signal. Since the IP signal is “sector neutral,” this procedure does not change sector weightings. As a result, you get an index tracking product with return and information ratio out-performance.
Each of the investment products described above can be bundled into structured products. Doing so provides investors with all of the benefits of structured products (e.g. principal protection) and IP investments (e.g. unique alpha and low correlation).