It was only a matter of time before some marketing-savvy Wall Street company jumped on the nanotechnology bandwagon and created a fund to capture the field's expected growth. Earlier this week, PowerShares Capital Management announced the creation of the first publicly traded nanotechnology fund, the PowerShares ETF Trust (AMEX:PXN).

The exchange-traded fund includes only companies involved in developing, manufacturing, and funding nanotechnology applications. It's a basket of securities designed to reflect the performance of a particular index -- in this case, the Lux Nanotech Index.

A number of the companies in the fund will be very familiar to readers of The Motley Fool because Carl Wherrett, John Yelovich, and I have written about many of them over the past year, including Elan (NYSE:ELN), Harris & Harris (NASDAQ:TINY), Flamel (NASDAQ:FLML), and Accelrys (NASDAQ:ACCL).

The fund was created for investors eager to profit from nanotechnology but who have limited time and resources to investigate nanotech companies. In theory, it's a great idea. Unfortunately, the fund falls short in its execution. It is, at best, a mediocre first attempt, and I'm not bullish on its ability to outperform the overall stock market.

For starters, the fund contains a couple of very dubious companies. For instance, I have long been skeptical of Altair's (NASDAQ:ALTI) prospects and am, quite frankly, amazed that the folks at PowerShare saw fit to make this lemon one of its largest holdings. Altair has a long history of making big promises and then failing to deliver on them.

Its inclusion in the fund causes me wonder how much due diligence PowerShare's analysts have done on their other holdings. I would have had greater confidence in the fund if companies like Arrowhead Research or Engelhard had been included instead of Altair.

The second problem I have is that the fund underemphasizes the influence of the Fortune 100 companies involved in nanotech. To be fair, DuPont, IBM, GE, and 3M are all included in the fund, but each company makes up, on average, only about 2.5% of the fund.

I realize that these big companies are involved in a lot more than nanotechnology, and, as such, it stretches the imagination to classify them strictly as nanotech companies. But I'm convinced that their respective R&D budgets and commercial prowess will make these giants among the first to profit from nanotechnology. I must also confess that I was perplexed as to why Intel (NASDAQ:INTC) was left out of the fund and General Motors included instead.

Finally, while I realize tough calls must be made regarding which companies are included in every fund, the failure to include emerging nanotech powerhouses like Invitrogen and Dow Chemical, as well as potential rule breakers like pSivida and Starpharma, left me scratching my head. In each case, I strongly believe that the growth prospects for the aforementioned companies are far greater than for Altair, NVE, Immunicon, or Nanophase Technologies.

To that end, I encourage investors looking to nanotechnology for market-beating returns to keep doing your own due diligence (and, of course, keep reading The Motley Fool), and then invest selectively in individual nanotech-related companies. You'll be better off in the long run.

Interested in reading more about nanotechnology?

Dow is a Motley Fool Income Investor recommendation. Flamel is a Motley Fool Hidden Gems pick. To find out which nanotech investments are right for your portfolio, check out David Gardner's Motley Fool Rule Breakers newsletter, which serves up plenty of Foolish insight on companies in cutting-edge industries. A no-risk trial subscription is yours for the taking.

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Fool contributor Jack Uldrich has been thinking small since grade school. He is the author of The Next Big Thing Is Really Small: How Nanotechnology Will Change the Future of Your Business and the forthcoming Investing in Nanotechnology: Think Small, Win Big. Jack owns shares of every company mentioned in this article with the exceptions of Altair, Arrowhead, Nanophase, NVE, and Immunicon. The Motley Fool has adisclosure policy.