Nano Tech ETF: Betting Big On Really Small Things
[Update Feb 24, 2014]
All shares of this ETF were liquidated. See the official announcement for more information.
The nanotechnology arena is far too narrow an area for me to invest in through an ETF. Yes, while there is great promise in nanotechnology, the investment rewards are not yet guaranteed and the road ahead is likely to be a bumpy one. But that shouldn't be a surprise -- the more risk you take the greater the potential returns.
An article by Palash Ghosh of Investment Advisor puts the technology behind this new movement in perspective with this description:
"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."
Nanotechnology is one of those areas where every now and again people proclaim that it is the year of the nano. Eventually they'll be right, but the year has yet to come. It reminds of the fuel-cell space which I got excited about many years ago, but I and many others were ahead of our time. I don't think fuel cells have had their day in the spotlight either and their use in cars makes the technology more mainstream than nanotech.
I'd rather take the bigger picture approach and let the benefits to society and industry that nanotechnology will deliver to permeate through my other holdings. Also, I think that nanotechnology won't advance without the broader technology market also advancing. At the same time, I think traditional technology could easily provide strong returns while nanotechnology languishes. Plus, with my diversified ETF portfolio, I'm likely to capture some of gains since both large and small companies that are involved with nanotechnology are represented in the ETFs I have chosen. Despite the narrow focus, the ETF has an expense ratio of 1.25% which is quite high for an ETF, in general, and high for a technology ETF where the average is around 0.63%. The last nail in the coffin if you ask me.
However, for those of you that are interested in holding a nano ETF, there's one from PowerShares. It was introduced in October 2005 and seems to focus on micro- and small-cap companies ($25 million is the average market cap) with a few large-cap value stocks thrown in to the mix. Most of the holdings are US-based with, at the time of this writing, about 12% outside of the US. Of the 24 holdings, the more popular ones are HP, GE, Intel and IBM at about 2.75% to 3% each which as I wrote above are all represented in the other market-cap and region based ETFs I prefer so yet another reason to pass this one over. The top 10 holdings account for over 50% of the fun so while there is some diversity, it's not nearly as great as what you'd get from a broader-focused ETF.