The nanotechnology market is currently experiencing a promising stage of growth. From nanotechnology-based solar panels that increase energy efficiency to therapeutics which make use of nano tech in the biomedical field, nanotechnology investing has far reaching effects which are quickly transforming the world.
What is nanotech?
Lauded as the new industrial revolution, research and development into nanotechnology has significant implications for almost every industry. Nanotechnology is the manipulation of matter on a nanoscale. A nanometer is one-billionth of a meter, or approximately 1/90,000th the width of a single human hair. With a market expected to reach $75.8 billion by 2020, this microscale is producing macro returns for savvy investors.
In 2006, Lux Research estimated that revenues from products using nanotechnology would reach $2.6 trillion by 2014 (a staggering increase from the $14 billion that nanotech produced in 2004). These optimistic market predictions spurred a flurry of nano investing, including the launch of PowerShares Lux Nanotech Portfolio (NYSEARCA:PXN), an exchange-traded $89-million fund launched by Lux Research and PowerShares Capital Management.
The portfolio is a non-diversified investment fund in the area of nanotechnology development, manufacturing, applications, and research, with 90% of investment based on the Lux Nanotech Index. In March 2006, Bloomberg reported the fund gaining 11.8% in the year to date, as compared to 3.9% for the S&P 500-stock index.
Ultimately the PowerShares Lux Nanotech Portfolio didn’t live up to its initial promise. Despite predictions at the peak of the mid-2000s nanotechnology investing bubble, nanotech stock didn’t achieve the rate of growth that investors had hoped and, after primarily incurring losses since its inception, the fund liquidated in February 2014.
The portfolio primarily incurred losses since its inception in 2005. Tracking the growth of $10,000 since its inception to its liquidation, the S&P 500 Index reached $18,476, while the Lux Nanotech Index (of which at least 90% of the fund was invested in) was only $4,589. These disappointing losses, coupled with the portfolio’s liquidation, illustrates the challenges that nano tech stock has faced since the optimistic predictions of 2006.
Future view of nanotech stock
However, this news isn’t all bad. What has emerged out of a boom and bust market is an industry founded upon strategic long-term business plans, and in-demand innovative products. Many industrial firms receive steady revenue from nanotechnology products, which they re-invest in the market to drive innovation forward.
For example, multinational conglomerate 3M (NYSE:MMM) uses nanotechnology in its products destined for the dental, electronics, architecture and energy markets. Used in dental restoratives (like fillings, crowns, and orthopedic brackets) and brightness enhancing optical films (which make LCD displays bright and clear), nanotech has a diverse range of uses. Some of 3M’s core nanotech products include 3M™ Optical Films, Prestige™, Filtek™.
With an anticipated compound annual growth rate of around 16.5% during 2014 to 2020, according to RNCOS’ “Nanotechnology Market Outlook 2020”, the nanotech market appears to be a promising investment. Although the dramatic anticipated growth rates of the mid-2000s are a thing of the past, what remains is a solid market which consistently produces exciting, far-reaching, and potentially transformative innovation.
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This is an updated version of an article first published on July 7, 2015 on Nanotech Investing News.
Securities Disclosure: I, Morag McGreevey, hold no direct investment interest in any company mentioned in this article.