The semiconductor industry serves as the spine for global
technological advancement. Though the technology sector at large
has been broadly mixed so far this year due to uncertainty
surrounding some of the top tech players, one sub-sector -
semiconductors - has shown some resilience of late (
The Comprehensive Guide to Semiconductor ETFs
In fact, many semiconductor industries have recently
experienced a spell of earnings driven upgrades in the Zacks
Industry Rank, suggesting that the space is well-positioned for
the near term. Statistics also bear out the relatively stable
trend, especially when looking at top line growth in the
According to World Semiconductor Trade Statistics (WSTS) data,
there should be positive worldwide semiconductor sales growth of
2.1% in 2013, following the 3.2% decline in 2012. Although the
cut its estimate
for chip sales, the data still confirms considerable
year-over-year improvement. Another agency, Gartner, also
foresees a decline in spending but a steady growth rate of
5.5% for 2013
At present, positive movement in the book-to-bill ratio
signals that spending for equipment will pick up later in the
year, triggering gains in the space. As per
, the semiconductor recovery will attain its peak later this year
as consumption matches yield.
Some analysts expect sales from semiconductors to continue
rising globally despite declining PC shipments given their
requirement in emerging technology applications like tablets and
Invest in Pockets of Semiconductor Strength
Given this bullish trend, a look at some of the top ranked
in the space could be a good way to target the best of the
segment. One way to find a top ranked ETF in the semiconductor
space is by using the Zacks ETF Ranking system.
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in
the context of our outlook for the underlying industry, sector,
style box or asset class (Read:
Zacks ETF Rank Guide
). Our proprietary methodology also takes into account the risk
preferences of investors. ETFs are ranked on a scale of 1 (Strong
Buy) to 5 (Strong Sell) while they also receive one of three risk
ratings, namely Low, Medium or High.
The aim of our models is to select the best ETFs within each
risk category. We assign each ETF one of the five ranks within
each risk bucket. Thus, the Zacks ETF Rank reflects the expected
return of an ETF relative to other products with a similar level
For investors seeking to apply this methodology to their
portfolio in the semiconductor sector, we have taken a closer
look at the top ranked SOXX. This ETF has a Zacks ETF Rank of 1
or 'Strong Buy' (see the full list of
) and is detailed below:
About the SOXX ETF
Launched in July 2001, the
iShares PHLX Semiconductor ETF
) is a passively managed ETF designed to provide broad exposure
to the U.S. semiconductor sector. SOXX tracks the PHLX
Semiconductor Sector Index.
The fund is a bit overlooked option among the technology ETFs
with about $240.6 million in AUM. Holding 131 stocks in its
basket, the product puts as much as 60.0% of its total assets in
the top 10 holdings, suggesting pretty high company-specific
Applied Materials Inc.
Texas Instruments Inc
) are its top three holdings with 7%-8% share each. Hence, any
positive/negative headline in top holdings will heavily impact
In fact, a chain of negative news in Intel made trading
difficult for semiconductor ETFs in early July (Read:
INTC Drags Down Semiconductor ETFs
), though good news out of other companies in the space-like
from TXN-has balanced this out. As such, we have a 'High'
risk outlook for SOXX in the near term.
This choice is an inexpensive one in the technology ETF space
with around 48 bps of annual fees which is lower than the average
expense ratio of the space. The fund is also liquid with a daily
trading volume of around 200,000 which is on par with some
asset-rich tech ETFs like
Vanguard Information Technology ETF
iShares Dow Jones US Technology
The Top Choice in the Tech ETF World?
Capitalization-wise, the fund is most exposed to large caps
(about 55%) followed by mid (34%) and small cap (10%) stocks. The
fund structure follows a blend style with around 51% of exposure.
Growth stocks account for 36% of the investment. Greater exposure
to large cap as well as blend style should call for lower
After witnessing a volatile tend in 2012, SOXX climbed in
2013, returning a robust 34.3% in the one-year period ending July
23rd, 2013 and about 26.0% in the year-to-date time frame. Over
the last one-year period, the return from SOXX has handily
outperformed the broad S&P 500 as well.
The product also pays an annual dividend yield of 0.83%. SOXX
hit a low of $47.02 and a high of $67.01 in the last one year.
The fund is currently hovering around its 52-week high price.
Despite the fund's heavy concentration risk, this
semiconductor ETF could still be an intriguing choice for
investors. Most of its underlying stocks are poised to outperform
the broader market this earnings season, possibly extending
gains for this top ranked fund into the fall.
Want the latest recommendations from Zacks Investment
Research? Today, you can download
7 Best Stocks for the Next 30 Days
Click to get this free report >>
APPLD MATLS INC (AMAT): Free Stock Analysis
INTEL CORP (INTC): Free Stock Analysis Report
ISHARS-US TECH (IYW): ETF Research Reports
ISHARS-PHLX SEM (SOXX): ETF Research Reports
TEXAS INSTRS (TXN): Free Stock Analysis
VIPERS-INFO TEC (VGT): ETF Research Reports
To read this article on Zacks.com click here.
Want the latest recommendations from Zacks
Investment Research? Today, you can download 7 Best Stocks for
the Next 30 Days. Click to get this free report