Nanotechnology stocks have lost ground rapidly over the past two months, according to one of the first stock-market indices devoted to tracking them. But analysts still expect the field to attract $400 million in venture capital this year — the most it has managed since 2002.

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SOURCE: LUX RESEARCH

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The downturn reflects the general doldrums in technology shares this year, says Peter Hebert, chief executive and co-founder of Lux Research, the consultancy in New York that developed the index.

“Most of it has to do with the overall market for technology stocks,” he says, adding that ‘the Lux’ has taken an even harder hit this year than the Nasdaq — the main US index for technology stocks — because the former is weighted towards smaller firms, whose shares tend to suffer most when investors are feeling cautious.

But 2005 is shaping up to be a bumper year for venture-capital investment in nanotechnology. Lux reports that $66 million was raised in March alone for three US companies — Nanomix, Nantero and Nano-Tex — and estimates that the flow of venture capital into US nanotechnology firms will double this year from the $200 million raised during 2004.

Tracking the financial performance of something as loosely defined as nanotech isn't easy, Hebert concedes. Lux has had a stab by pulling together companies that supply nanotech products, build nanotech tools such as atomic-force microscopes, or use nanotech in their businesses. Its index allocates equal weighting to all of the firms — effectively giving more clout to the smaller, more specialized ones.

“We've been one of the first to stress that nanotechnology isn't an industrial sector per se,” says Hebert. “It's an enabling technology. Investors have been perplexed about how to approach nanotech — but we're seeing progress now.”

http://www.luxresearchinc.com