General Motors Dumped from Nanotech Index

News flash: General Motors has been kicked out of the Lux Nanotech index, which is the basis for the Powershares Lux Nanotech Portfolio (AMEX: PWN), an exchange traded fund. I suppose it would be grandiose to suggest that the change was made because of my derisive comments. GM has been replaced by Toyota. The explanation, according Lux Research Vice President of Research Matthew M. Nordan, co-chair of the Index selection committee, is that “while GM remains the world leader in using nanocomposite materials for body moldings,Toyota is better positioned financially to pursue next-generation nanotech applications in the auto industry.” In other words, Toyota is not on the brink of bankruptcy.

Just the same, what is a car company doing in a nanotech index? According to Lux Research, the index has two components: “1) nanotech specialists – small and mid-sized companies that focus specifically on developing or funding emerging nanotechnology applications, and 2) end-use incumbents – large companies that are applying nanotechnology to existing product lines.” Car companies, natch, are in the second category. By similar logic, you could put car companies in a Chemical Industry index, because they use plastic and paint, or a Semiconductor Index, because cars have microprocessors in their electronics systems, or in a hypothetical MEMS (microelectronic mechanical systems) Index, because the accelerometer in the air bag is a MEMS device.

The real reason that Lux is compelled to use “end-use incumbents” like car companies in the index is because they need stocks from large, stable companies to balance out the illiquid stocks from the tiny companies that are actual “nanotech specialists.” Unfortunately, the inclusion of the big caps completely destroys any utility of the index to reflect the commercial growth of the nanotech industry, such as it is.

I should quit flaming Lux and create my own nanotech index, I suppose. Stay tuned.

Lux also dumped drug delivery company Skye Pharma in favor of Arrowhead Research, a diversified nanoconglomerate (another nanoneologism), which I agree is a reasonable move. NEC has been replaced by Intel. “Intel is being added not because it produces transistors with nanoscale features using mainstream CMOS manufacturing techniques, but because it increasingly focuses on new innovations like carbon nanotube-based electronics for the post-silicon era – as described in the latest International Technology Roadmap for Semiconductors, published last month,” says Nordan. “On the other hand, NEC’s leadership position – going back to its researchers’ discovery of carbon nanotubes in 1991 – has eroded as proposed products like nanotube-powered portable fuel cells have taken more time than expected to prove viable.”