Graduate to Nanotech ETF

09/08/2006 12:00 am EST

Focus:

Carlton Delfeld

Editor, The La Jolla Letter and Pacific Gains

Always on the cutting edge, Carlton Delfeld takes a look at the coming promise of the complex field of nanotechnology. And to help investors mitigate their risk, he suggests a diversified method of investing and profiting from its opportunities…

 

“In the movie The Graduate is the unforgettable scene at a cocktail party, when a businessman leans over and whispers into young Dustin Hoffman’s ear that “plastics” is the next great growth industry. Perhaps today he might have suggested nanotech. I am no scientist and my guess is that you aren’t either. So how can we get comfortable with nanotech and, more importantly, invest in it? First of all, what is nanotech? The word “nano” is Greek for small and a nanometer is really small—one billionth of a meter. Written with nanometer letters, 20 volumes of Forbes archives could fit on the tip of a pin. Nanotechnology cuts across the disciplines of physics, chemistry, and biology and deals with working with these molecules and sub-atomic particles to create, control, manipulate, and organize them into new structures and new uses. Commercially developing new materials with new properties means big breakthroughs and big bucks. The applications are endless, medicines, energy, agriculture, textiles, and so on. Nanotech also has the potential to crush existing products and technologies.

 

“This could be big. But what is the smart way for an investor to get a piece of the action? You could try to pick specific nanotech companies but which ones? A better approach may be to buy a basket of these stocks with the thinking that most of them won’t pan out but a few might hit it big. A good tool for this approach would be the Powershares Nanotech ETF (PXN ASE), which was launched in October 2005.

 

“This ETF basket contains 26 companies involved in nanotech with 68% of them categorized as small-cap growth and 22% as large cap value. The ETF has a composite p/e of 18. Powershares ETFs are not market cap weighted so you get a more even distribution in company weightings. In the nanotech ETF, the largest holding is NVE Corp. at 8.6%, followed by Nanophase Technologies, at 5.4%. Next comes eight companies in the 4% area so an investor gets a nice balanced exposure. This ETF is, of course, speculative and you need to think of it a bit like a venture capital fund. I hope that nanotech’s promise meets the high expectations. At the very least, you will be able to mention casually at a cocktail party that you are a nanotech investor. Impressive, to say the least.”

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