A fascinating and exciting new technology is revolutionizing industry, and it’s happening in places invisible to the human eye.
Nanotechnology, which involves the development, manufacture and application of products at the molecular level, will have a profound impact on virtually every business if implemented successfully, from consumer electronics to textiles, automobiles, pharmaceuticals, and everything in between. On this ultra-small scale, matter can be manipulated with molecular precision.
To understand the dimensions, consider that one nanometer is equal to about one one-billionth of a meter, or 1/75,000th of the diameter of a single human hair. At this level, materials exhibit properties that reflect quantum physics. Many “nano-scaled” products, from tiny robots or micro-machines to nano-particles that could help clean the environment, may have unprecedented positive effects on human activity.
Indeed, the growing importance of nanotechnology was underscored by President George W. Bush in his State of the Union address in January. He proposed to double the Federal commitment to the most “critical basic research programs in the physical sciences over the next ten years,” including nanotechnology. In March, the U.S. Secretary of Commerce Carlos M. Gutierrez announced the launch of a state-of-the-art center for collaborative nanotechnology research at the National Institute of Standards and Technology in Gaithersburg, Md.
But will this “nanotech revolution” translate into tangible investment opportunities for stock pickers anytime soon?
Lux Research Inc., a nanotechnology research and advisory firm, estimates that revenues from products using nanotechnology will rise from $13 billion in 2004 to $2.6 trillion in 2014, equaling about 15% of global manufacturing output at that time. By then, the firm believes, nanotechnology will be a routine part of everyday living.
All Things Great and Small
Jack Uldrich, president of NanoVeritas Group, a consultancy, and author of two books on nanotechnology, estimates that corporations around the world will spend more than $10 billion on nanotechnology in 2006. He closely follows about 100 U.S.-based nanotech firms, of which 60% are privately held. Of those 100, roughly 60 have commercial products currently on the market and about 22 are profitable. “These firms are supplying nano-scale equipment to the nanotech industry, as well as to big companies like International Business Machines (IBM) and Intel Corp. (INTC),” Uldrich notes. He believes the number of ‘nanotech’ companies, profitable or otherwise, will continue to increase.
Late last year, Lux Research, in tandem with PowerShares Capital Management, launched an exchange-traded fund, the PowerShares Lux Nanotech Portfolio (PXN), for investors seeking to invest in nanotechnology. The tiny $93-million fund invests in stocks of the Lux Nanotech index, which consists of 26 publicly held companies. It is the first investment vehicle dedicated to this emerging technology, and the index is designed to be representative of the “overall space,” says Peter Hebert, chief executive officer of Lux Research. Year-to-date through March 31, the ETF gained 12.0%, versus a 4.2% rise by the S&P 500-stock index. The portfolio is too new to be ranked by Standard & Poor’s.
The Lux index consists of companies developing or manufacturing tools used to develop nanotechnology, and well-established firms integrating nanotechnology into their existing products. Components are broken down into two basic types of stocks: “nanotech specialists” and “end-use incumbents.” The specialists are small- and mid-size companies that focus specifically on developing or funding nanotechnology applications. The end-use incumbents are large-cap companies applying nanotech to existing product lines. The two groups are then equally weighted with 75% applied to the nanotech specialist components and 25% for the end-use incumbents.
The first group, nanotech specialists, includes companies such as FEI Co. (FEIC), which is “essentially a toolmaker, manufacturing the ‘metaphorical picks and axes’ of the nano gold rush,” Hebert explained. The firm makes electron microscopes used by nanotech researchers since regular optical microscopes aren’t powerful enough to see nanometer-sized material. He noted that large corporations like BASF AG (BF) are buying FEI’s equipment. Hebert said that while FEI is traditionally known by Wall Street as a semiconductor company or a data storage tool provider, about 50% of the company’s business is now based on nanotech.