...read the wave
Guest Writer - Gastautor - Gast Schrijver

Is the Nanotechnology Index
(NNZ) just a bunch of bull ?


In April 2004, Merrill Lynch launched the Nanotechnology Index (NNZ) to be quoted intraday by the American Stock Exchange. First Trust also launched a Nanotechnology mutual fund, FTNATX, this past March 2004. There is already a Munich and Luxembourg based Nanotech mutual fund launched Nov. 2002 and Sept. 2003, respectively. However with the advent of Merrill Lynch into the fray, it validates Nanotechnology in the investment community. So the investment companies are finally hopping on the nanotech bandwagon.

In their Technology Strategy updates on nanotechnology, Merrill Lynch says the criteria by which they choose companies to be on the NNZ index is that the companies must indicate in public documents that nanotechnology initiatives represent a significant portion of their future activities. There are currently 24 companies in their index but they admit they will rebalance the list quarterly. It is unfortunate that giants such as IBM, DuPont and HP who do a significant amount of nanotech research are not included using those qualifications. In addition, Flamel, listed on the NNZ, is not the only publicly traded bio-nano company just like Veeco on the NNZ list is not the only publicly traded instrumentation company that supplies the nanotech research community.

However, there are many nanotech companies that don’t want to classify themselves as nanotech so as to maintain their competitive advantage. In business, there is usually not a good reason to publicly disclose your strategic activities to your competitors. Some companies also don’t need to if they’ve always been doing it.

Merrill Lynch is right about nanotech being an approach, a concept which I champion and introduced to them. What nanotechnology is really about, is a better approach to what we’ve been doing all along but now we can now see and manipulate even smaller things. It is akin to when Anton Van Leeuwenhoek invented the microscope. This opened up a whole realm of being able to understand nature better by being able to observe cells and bacteria and blood capillaries that could not be seen before. This ability to much better see small things allowed new scientific breakthroughs in biology and medicine.

When science discovered the electron, it paved the way for new technical breakthroughs in electronics which affects just about everything. The term microtechnology or microelectronics conjures up images of integrated circuit chips which affects many industries also. Nanotechnology is the same. The term nanotechnology makes those who understand microtechnology more comfortable but the label is no less illuminating. However, it is understandable that for most people, they feel more comfortable having a label whether or not it really means something.

Ideally, there can not really be a nanotechnology index or nanotechnology mutual funds because nanotechnology affects many industries and markets. Similar reasoning as to why there should not be an e-Commerce or Dot.com Index. If they really want nanotechnology index, its impact would ultimately be reflected the overall manufacturing indices. That being the case, there’s no need for a nanotechnology index if there’s already a similar indicator, even though it’s not born of the investment community. Was there a microtechnology index? There is a similar argument against nanotech mutual funds as with nanotech indices.

Merrill Lynch talks about the nanotechnology sector being narrow and full of pure plays. This is correct. However, this is different from saying they are nanotechnology pure plays. I have often been asked what companies are nanotechnology pure plays. There is no such thing as a nanotechnology pure play.

Right now, people are classifying nanotechnology as a subset of other sector activities. A more accurate classification is to have sectors classified under nanotechnology, such as the nanotech side of biotech, which some call Wet Nano or Bio-nano. For the more well informed and astute, the whole nanotechnology umbrella will soon disappear altogether because the classification is meaningless.

The companies in the NNZ are uncorrelated due to the fact it is full of pure play companies and which explains their stock behavior. Then how useful is the NNZ as an indication of the nanotechnology investment environment?

For the investment firms doing all this, the real money is not in nanotech mutual funds or stocks. So why are they doing this? Marketing.

I am preaching to the choir, but the value being pursued here for an investment firm is to be perceived to be a knowledgeable and credible player in an emerging trend, such as nanotechnology, by producing something that appears as if it is bringing value to the investment community. It tries to accomplish this by educating the investment community through a nanotechnology index and tech strategy reports. I suppose to some extent, an educated consumer is your best customer. However, the purpose for this education is to attract business, similar to using supposedly objective analyst reports, to its real money making activities in underwriting IPO’s and M&A’s.

By the way, Merrill Lynch is one of the investment banking firms underwriting the Nanosys IPO. However, Merrill Lynch’s venture arm still has yet to invest in nanotechnology startups.

The NNZ gets Merrill Lynch an ‘A’ for effort and timing but there’s plenty of room for improvement. In the end, after getting past the hype, what does it matter if you call it nanotechnology as long as it works and makes money.



Science is unpredictable. Expect the unexpected.

Dr. Pearl Chin has an MBA from Cornell, a Ph.D. in Materials Science and Engineering from University of Delaware's Center for Composite Materials and B.E. in Chemical Engineering from The Cooper Union.

Dr. Chin specializes in advising on nanotechnology investment opportunities. She is also Managing General Partner of Seraphima Ventures and CEO of Red Seraphim Consulting where she advises investment firms and and startup firms on the business strategy of nanotechnology investments. She was Managing Director of the US offices and co-Managing Director of the London offices of Cientifica. Prior to that, she was a Management Consultant with Pittiglio Rabin Todd & McGrath (PRTM)'s Chemicals, Engineered Materials and Packaged Goods group. Dr. Chin will be advising the Cornell University JGSM's student run VC fund, Big Red Venture Fund (BRVF), on investing in nanotechnology.

She is a Senior Associate of The Foresight Institute in the US and was the US Representative of the Institute of Nanotechnology in the UK. She was an alternate finalist for a Congressional Fellowship with the Materials Research Society. She was also a Guest Scientist collaborating with the National Institute of Standards & Technology (NIST) Polymer Division's Electronic Materials Group under the US Department of Commerce. Dr. Chin is a US Citizen born and raised in New York City.

© Pearl Chin 2004


Dr. Pearl Chin


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