Nano and Not-so-Nano

I have finally gotten around to looking into the composition of Lux Research’s “nanotechnology” Exchange-Traded Fund [AMEX: PXN], which began trading November 1st. First, let me say that I sympathize with anyone trying to dream up a nanotech index. It is not easy, because there are not that many publicly-traded nanotech companies. Some of the better nanotech companies, like Zyvex and Nanosys, have yet to hold an IPO. Also, I do not get into religious arguments about what constitutes nanotech. There is a continuum stretching from submicron to subatomic and nobody is going to hobble his business enterprise by a strict adherence to a portion of the scale. Still, my first reaction to viewing the Powershares Lux Nanotech Portfolio is: YOU HAVE GOT TO BE KIDDING!

The idea of an exchange-traded fund, I thought, was to track a segment of the market on an industry-basis, like the semiconductor companies or the biotech companies. PXN tracks the Lux Nanotech Index which according to CEO Peter Hebert “is designed to serve as a benchmark for the value that markets ascribe to emerging nanotechnology.” Seriously, would you buy General Motors as an example of “emerging nanotechnology?” PXN is a hodgepodge of stuff, which if you’re lucky might track the general market.

Many of the names in the index are so well-known that no knowledgeable investor could delude himself into thinking that a significant proportion of their revenues derive from nanotech. Indeed, you would need a nanoscope to find an activity within some of these companies that relates to nanotech. But many are less well known. So below, I have parsed the PXN into precise categories based on the percentage of their revenues or activity that is related to nanotech.


Hardly Any Nanotech

Headwaters
Hewlett-Packard
BASF
IBM
NEC Corp.
General Electric
General Motors Corp.
3M Company
Air Products & Chemicals
Du Pont De Nemours

Some Nanotech

Elan (drug delivery technology)
American Pharmaceutical Partners (Abraxane, a cancer drug)
Westaim (nanocrystalline silver as antimicrobial)
Accelrys (molecular modeling)
Skye Pharma (drug delivery technology)
Biosante Pharmaceuticals (drug delivery technology)
Symyx Technologies (combinatorial chemistry)
Cambridge Display Technologies (polymer LEDS)
Flamel Technologies SA (drug delivery technology)
FEI Company (electron microscopes)
Veeco (scanning probe microscopes)
Immunicon (ferrofluids used for cell sorting)

Mostly Nanotech

Altair Nanotechnologies (nanoparticles)
Harris and Harris Group (venture capital focused on nanotech)
Nanophase Technologies (nanoparticles)
NVE Corp. (spintronics)


To be fair, some of the “Hardly Any” companies mentioned above, like IBM (see my recent post), have developed interesting nanotechnologies, Headwaters has developed some nanoscale catalysts for the energy industry that may find wide application. On the other hand, Headwaters already has a billion dollars in revenue involving stuff like building materials and coal-based fuel. I don’t know how General Motors uses nanotech and I don’t really care. The company is on the bankruptcy watch.

Hopefully, I will get a rebuttal of this post from Lux Research, which I will share with you when it comes.

A Better Proxy

Meanwhile, if you want a real proxy investment for the nanotech industry (I’m not saying you should; this is not a buy recommendation), consider Harris & Harris [NASDAQ: TINY]. H&H is a publicly traded venture capital company that focuses on what it calls “tiny technology”; not strictly nanotech but close enough. Yesterday, it announced that it had sold its stake in its last non-tiny technology company, Neurometrix [NASDAQ: NURO] for proceeds of $34.5 million. When H&H discovered Neurometrix, it consisted of a single person with an idea, Shai Gozani, a Harvard MD. Their investment has paid off many-fold.

The H&H portfolio contains some of the most interesting names in nanotech, including Nanosys (nanowires and quantum dots), Nantero (nanotube based memory), and Molecular Imprints (nanolithography).