Nanotech fund off to slow start; could spur industry investment

Nov. 27, 2002 — In a move that could ultimately spur small tech investment, the first-ever mutual fund of publicly traded small tech companies was launched this month. It got off to a slow start, but industry experts think it has great promise and the timing is right.

As for the first day of trading, “It was quite sluggish,” said Thiemo Lang. “People are hesitant because they don’t know nanotechnology sufficiently well.”

Lang, a portfolio manager, is a member of the team that created and manages the fund, called Activest Lux NanoTech. In addition to investor wariness about nanotechnology, Lang attributed the fund’s lethargic launch to the overall investment climate. “Everybody is skeptical and risk averse.”

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The fund is available to investors in Germany, Switzerland, Austria and Luxembourg but not in the United States. It is composed of approximately 70 percent U.S., 16 percent European and 14 percent Asian stocks. Transactions take place in Luxembourg.

The fund began trading Nov. 4 after a one-month subscription period. By the middle of the first of week of trading, it had raised approximately $5.3 million, which includes shares bought during the subscription period as well as investments from Activest’s parent HypoVereinsbank.

To overcome initial investor apprehension, Lang is reaching out to educated professionals. “I think this is really our target group now.” He added that engineers, scientists, physicians and other high tech professionals are less likely to be intimidated by the technology.

Courting investors who aren’t afraid of the technology worked for Harris & Harris Group Inc., a publicly traded venture capital company based in New York. This past summer, Harris & Harris raised about $6 million in a rights offering and announced that it would invest exclusively in nanotechnology, microsystems and MEMS companies.

Chief Executive Charles Harris credits the success of the offering (90 percent subscribed) largely to attractive pricing and to the fact that company insiders set an example by subscribing their own rights. However, he also noted that his company’s shareholders were already attuned to investing in cutting-edge technologies. “We had always done early stage venture capital,” Harris said. “It wasn’t as if we went from the grocery business or oil well drilling business.”

Activest lacks such previously committed investors. Lang said the fund must therefore prove itself. “If you can show over the next six months or so that the performance of the fund is OK, that it’s behaving nicely, then I think more interest will come.” The launch of an official marketing campaign will wait until a track record has been established.

Despite the nanotech label, the fund includes investments in companies that work at both the micro and nanoscale and is intended to include a range of different types of companies. “We made quite a balanced distribution between different sectors and also different market caps,” Lang said.

What portfolio companies have in common is that nanotechnology, in the opinion of fund managers, could help their bottom line. Among the fund’s top holdings are such household names among technology investors as Agere Systems Inc. and Agilent Technologies Inc., as well as small tech tool makers like Veeco Instruments Inc.

Just as notable are those not included: BASF, for example. “We think that, even if you are producing these basic nanoresources or nanomaterials, we want to see a bit more,” Lang said. “We want to see that these companies are committed to developing nanodevices out of it.” Lang’s aversion to raw nanomaterials is reflected in the fact that the category accounts for a mere 1 percent of the fund.

He’ll also pass on Hewlett-Packard Co., although for an entirely different reason. “They are doing some interesting stuff in nanoelectronics, but the structural problems in the computer sector are so overwhelming.”

As for the overall investment climate, Lang said he thinks current circumstances can ultimately help. “The people, the investors, they are still very cautious. Most of them are too pro-cyclical.” The silver lining to the current cloud: “In many stocks we have fine value. If the economy picks up these might be very decent entry points.”

Tim Harper, chief executive of Madrid, Spain-based nanotechnology consultancy CMP Cientifica, concurred. “Given the current market conditions and company valuations, there may not be a better time to invest in a fund like Activest’s product,” he said via e-mail. “Nanotech is the only bright spot in an otherwise moribund market.”

Harper said the fund, if successful, could spark creation of similar products, a development that would “affect the stock price of nanotechnology companies and will be positive for the sector in general.”

Harris was similarly impressed by the countercyclical launch. “I think their timing is brilliant,” he said. “If I weren’t in love with venture capital and dedicated to venture capital, I’d be doing the same thing.”

How the fund breaks down

  • Process equipment and analytical instruments: 35%
  • Diversified large caps: 18%
  • Semiconductor: 14%
  • Display technology: 11%
  • Thin films: 11%
  • Biotechnology: 10%
  • Nanomaterials: 1%

Top 10 Holdings

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