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In October of 2005, the AMEX introduced the world's first nanotech fund, based on the Powershares Lux Nanotech index, which trades under the symbol PXN. While nanotechnology's potential to change the way we live is indisputable, the PXN does a poor job of gathering particular stocks in its portfolio that could one day benefit investors. The PXN bases most of its investments on large cap stocks such as Kellogs and Coca-Cola. While both of these companies are doing excellent research into nanotechnology, you are buying far more into the world of soft drinks and cereal than into the world of nanotech. In a way, this makes sense. Nanotechnology is play on the future of an unproven industry and a very speculative one at that. The majority of small companies in the industry that trade on the exchanges will not be around a few years from now, making investments into these stocks highly risky. By using mostly large cap companies, the PXN is guaranteed to be around 10 years from now, even if the whole nanotechnology promise goes bust. However, it will not make you rich. The invention of mutual funds and now ETF's have changed the investing world to the point where diversification is possible with small investments. Only a few thousand dollars can buy you interests in a few hundred companies. While the majority of small nanotech companies will go under, a diversified investment among these companies could show very high returns if only a handful of them succeeded.
The chance of picking the one that can make you rich on your own is miniscule, but the chance of having it in a large basket of stocks is very high. Imagine placing $10,000 in 1985 in the operating system industry. Surely 4 out of 5 companies failed, but the small investment in Microsoft would have turned that initial investment into over a million dollars today. The PXN, with a high exposure to large cap stocks minimizes the possibilities of hitting the next Microsoft. However, a diversified small cap investment may be on the horizon. The editor of nanotechnology.com (http://www.nanotechnology.com) claims that by the first quarter of 2006, his company will launch a nanotechnology fund. Depending on the stocks in this fund, this could be a good play for those wanting to invest a little money in the industry. As more information becomes available, The Commodity Investor will pass it along to our readers. |
