What Happened to the Merrill Lynch Nanotech Index?
Around the year 2004, nanotechnology seemed like the next big thing for investors and even the large investment banks took notice. In March of 2004, Merrill Lynch released their “Merill Lynch Nanotech Index” which “provided a diversified representation of nanotechnology stocks and ADRs in the United States”. Since the index is no longer calculated, and no funds or ETFs appear benchmarked to it, we can only speculate as to how it might have performed to date. What might be of interest is to see just how all of the “nanotechnology companies” that belong to this index have performed over the past 10 years since the index was first formed.
If you had invested in an S&P 500 index fund or ETF exactly ten years ago today, you would have realized somewhere near a +70% return as of today. The same investment in the tech-heavy Nasdaq would have realized a gain of around +116% over the same time frame. If any member of the Merrill Lynch Nanotech Index did not at least provide better returns than the Nasdaq over the past 10 years, then it would have under-performed this broad index and would not have given an investor sufficient rewards for the risk taken.
Below is a list of the 25 companies that comprised the Merrill Lynch Nanotech Index in March of 2014:
Just how did all these companies fare over the years?
Two of these companies are no longer around:
| Three-Five Systems Imaging | Bankrupt |
| JMAR Tech | Delisted |
Another five companies underwent corporate events in the form of acquisitions and mergers. The percentages shown below reflect the acquisition prices compared to the price of these companies on March 19, 2004:
| Applied Films AFCO Materials | Acquired by Applied Materials for $464 million (-1%) |
| Pharmacopeia | Acquired by Dassault for $750 million (+59%) |
| Westaim (Nucryst) | Acquired by Smith & Nephew for $21 million (-88%) |
| Caliper Life Sciences | Acquired by PerkinElmer for $600 million (+221%) |
| Symyx Technologies | Merged with Accelrys |
| Biosante Pharmaceuticals | Merged with ANI Pharmaceuticals |
Out of the 17 remaining companies, 12 had negative returns over the past 10-year period:
| Altair Nanotechnologies (NASDAQ:ALTI) | -64% |
| Emcore EMKR (NASDAQ:EMKR) | -21% |
| Flamel Technologies (NASDAQ:FLML) | -33% |
| Nanophase Technologies (OTCMKTS:NANX) | -91% |
| Nanogen (OTCMKTS:NGEN) | -100% |
| Harris & Harris (NASDAQ:TINY) | -44% |
Of the 11 remaining companies, 7 showed positive returns but did not manage to beat the Nasdaq’s returns of +116% over the past 10 years:
| Veco (NASDAQ:VECO) | +36% |
| Headwaters (NYSE:HW) | +37% |
| MTS Systems (NASDAQ:MTSC) | +84% |
| NVE Corp (NASDAQ:NVEC) | +18% |
| SkyePharma (LON:SKP) | +6% |
| Ultratech (NASDAQ:UTEK) | +40% |
| Cabot Corp (NYSE:CBT) | +84% |
The 4 remaining companies below all managed to beat the returns of the Nasdaq over the past 10 years:
| Amcol International (NYSE:ACO) | +207% |
| FEI (NASDAQ:FEIC) | +431% |
| Nanometrics (NASDAQ:NANO) | +121% |
| Universal Display (NASDAQ:OLED) | +370% |
Amcol also pays a meaningful dividend of 1.75 %, so this extra income has to be taken into consideration as well. All of these 5 companies may merit a further look to determine whether or not their strong historical performance was enabled in any way by the use of nanotechnology.
So what about the investor who would have decided to place an equal bet of $1000 on every member of the Merrill Lynch Nanotech Index in March 2004? Well since we know the exit price or current share price for 21 of these 25 companies, we can calculate the approximate returns of that investment (excluding dividends) over the past 10 years. An investor who invested $1000 in each of these 21 companies would have spent $21,000 and have $33,729 just over 10 years later for a return of around +61%. Given that the Nasdaq returned +116% in the same period, investors may have been better off putting their money in a Nasdaq fund or ETF instead of investing in the Merrill Lynch Nanotech Index.
NOTE: When the article was originally published, we incorrectly used Cabot Oil and Gas instead of Cabot Corporation. This has since been corrected.
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This is a great historical snapshot that illustrates how dynamic, fast changing, and just plain risky nanotechnology can be. From an investment perspective, I believe it makes sense to invest in bigger, blue chip companies that conduct nanotech related R&D and have patents related to nanotechnology (rather than smaller firm “pure plays”). Companies like this would include (but not be limited to): BASF, IBM, and Samsung. I really enjoyed this article and would like to see more like it. For example, I used to be invested in the Powershares ETF “PXN,” until the company ended it last February. Why did Powershares stop offering that ETF and why did they make the decision when they did? Also, I am in the beginning stages of putting together my own list of publicly traded nanotech related companies (composed of both blue chips and “pure plays”) and I would be curious if any of the staff or readers of Nanalyze have a similar effort. I would like to see other people’s stock lists and compare them with my own. Thanks again for writing and posting this article.
Thank you for the comment Mark and we’re glad you enjoyed the article. PXN was an ETF that performed poorly and it was most likely discontinued because it did not attract enough assets to make the management fee cover the expenses of offering it. It would be great to compare notes on the list of nanotechnology companies you are putting together. We don’t have a list as such, we just write articles as we come across interesting companies. Over time, this should provide the basis for a proper list.
Regarding your comment on bigger blue chip companies, it is very tough to deduce what impact nanotechnology patents/R&D have on the bottom line for companies of this size. Should you realize strong gains over the next 10 years, is there really any way of knowing what contribution nanotechnology had to the bottom line? In the asset management world they call this “performance attribution”, and to determine what contribution nanotechnology made to gains over time seems next to impossible. Nevertheless, the potential market is massive as it effects most industries and it is through knowledge sharing that we can deduce just what might be the best nanotechnology investments. If you want to send over your list of companies to [email protected] maybe we can look to write some articles on some of the companies you have come across.
My last comment was a little long winded. Here is a shorter one: What are the top ten nanotechnology related stocks to buy right now and hold for the long term?
Great question Mark. Of the companies we have covered so far, I would say the following publicly traded companies may be worth looking into for a speculative buy-and-hold:
– Aspen Aerogels
– Cerulean Pharma
– Bind Therapeutics
– Oasmia
– Nanobiotix
– Nanoco
– RNAi Stocks in General (we classify as nanotechnology but some may argue otherwise)
– Nanosphere
– pSivida
Graphene is also considered nanotechnology, and graphene companies Haydale and Applied Graphene materials don’t seem to be generating much revenues so I would consider them highly speculative plays on the graphene story. These is not by any means a top-10 list, just companies we have covered (mostly biotech) with seemingly compelling value propositions.
And also as a disclosure, of the above we’re only holding Bind and Nanoco long.
I just e-mailed you my complete list. Below is a shorter list. I found this on another website and it overlaps with mine. “The following are the top ten companies with the lowest P/E to growth ratios and market capitalizations over $1 billion tat are involved in nanotechnology in some way.”
1. TSM, Taiwan Semiconductor
2. AMKR, Amkor Technology
3. COHR, Coherent
4. AMAT, Applied Materials
5. CCMP, Cabot Microelectronics
6. DOW, Dow Chemical
7. RFMD, RF Micro Devices
8. CBT, Cabot Corporation
9. ADI, Analog Devices
10. ABB, ABB Limited
Thank you for that Mark. The above list is interesting and seems heavily weighted towards electronics. We’ll respond to your email shortly.