What Happened to the Lux Nanotech Index?

Just over ten years ago now, the phrase “nanotechnology” and the subsequent derivations “nanotech” and “nano” started to become all the rage with investors. All the “nanotech stocks” at that time showed superior gains and investors began looking for ways to get diversified exposure to nanotechnology. In 2006, Powershares released the “Lux Nanotech ETF” which allowed investors exposure to 30 different “nanotechnology companies” in various industries. In February of this year, Powershares announced that they would retire the ETF, no doubt in part because of the dismal returns of the ETF over the past 8 years:

Lux_Nanotech_Returns

An investor in this ETF would have lost half their money, while simply investing in an S&P 500 ETF would have resulted in returns of over 80% over the same time frame. So what contributed to the poor returns of this ETF? We can look at the returns of each of the 30 companies in this index in an attempt to answer that question. We can also see if there are any companies that may merit a second look for today’s “nanotechnology investors”.

Companies in the Lux Nanotech ETF

Firstly, we see four large caps in the list; General Electric, IBM, Intel, and Dupont. All of these companies we discussed in a previous article titled “Nanotechnology Investing and Large Cap Companies“. Next, we see that 8 of these companies were also included in the Merrill Lynch Nanotech index. These eight companies (Flamel, Universal Display, Emcore, Harris & Harris, Headwaters, Nanometrics, FEI Company, and Veeco) we highlighted in a previous article titled “What Happened to the Merrill Lynch Nanotech Index?“. This leaves us with 18 companies in the Lux Nanotech Index to look at.

Firstly, let’s eliminate any company that did not meet or exceed the returns of the NASDAQ over the past ten years. If a company is truly using nanotechnology in a “disruptive manner”, we would expect to see superior returns when compared to the overall stock market over the past decade. Since the NASDAQ has returned +145% over the past 10 years, we will eliminate any company that did not exceed this benchmark. This first set of eleven companies actually had negative returns over the past 10 years:

10-Year Return Market Cap (millions) Business Focus
AMSC (NASDAQ:AMSC) -82% 136 Nano wires
Layne Christensen (NASDAQ:LAYN) -21% 211 Water management
Maxwell Technologies (NASDAQ:MXWL)  -5% 261 Energy storage
Nanosphere (NASDAQ:NSPH) -95% 108 Molecular Diagnostics
Vical (NASDAQ:VICL)  -71% 110 DNA drug delivery
Hydrogenics (NASDAQ:HYGS) -72%  1400 Deposition equipment
Research Frontiers (NASDAQ:REFR) -23%  287 Medical diagnostics
Arrowhead Research (NASDAQ:ARWR)  -82% 604  RNAi Therapeutics
Ballard Power Systems (NASDAQ:BLDP) -38%  513 Fuel Cell Products
Surmodics (NASDAQ:SRDX) -11%   287 Medical diagnostics
pSivida (NASDAQ:PSDV)  -54% 128  Drug delivery

These next two companies had positive returns over the past 10 years but did not manage to beat a simple investment in the NASDAQ:

10-Year Return Market Cap (millions) Business Focus
Polypore International (NYSE:PPO) +136% 1900 Filteration
Accelerys (Acquired) +108% 697 Scientific informatics

This leaves us with 5 companies left. Two of these companies managed to beat NASDAQ by a nominal amount. The other three managed to beat the returns of NASDAQ by at least a factor of 3. In our next article, we’ll take a closer look at all two of these companies.

Pure-play disruptive tech stocks are not only hard to find, but investing in them is risky business. That's why we created “The Nanalyze Disruptive Tech Portfolio Report,” which lists 20 disruptive tech stocks we love so much we’ve invested in them ourselves. Find out which tech stocks we love, like, and avoid in this special report, now available for all Nanalyze Premium annual subscribers.

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