Semiconductor ETFs in Trouble?
iShares PHLX Semiconductor ETFSOXX , the most popular semiconductor ETF, had record outflows of $393 million in the week ended Sep 7. Of this $259 million was pulled out on the day alone, the most since its inception in July 2001 (see: all Technology ETFs here ).
A nearly two-year brilliant run for the $121 billion global memory chip industry has now begun to slow down. The semiconductor space has faced stumbling blocks because of Nvidia's NVDA suspension of the self-driving car tests in March, trade tensions and the plunge in cryptocurrency prices. Several central banks and regulatory authorities have questioned the worth of these currencies and SEC has also raised concerns regarding the volatility exhibited in prices. Recently, the SEC postponed the launch of Bitcoin ETFs.
KLA- Tencor Corp KLAC , the world's number one supplier of chip inspection equipment has fallen nearly 10.6% over the past week. The U.S. semiconductor industry will be voicing their concerns to President Trump's administration on reconsidering export limits to China.
These limits will be a loss to the U.S. economy as China is a major importer. These will unfavorably impact the employees working for exporting firms. The total expenditure by China in semiconductor equipment reached $8 billion by the start of 2018, most of it got supplied by America.
"As foundry customers optimize existing capacity, they have trimmed their capital spending plans for the year," Applied Materials AMAT Chief Executive Officer Gary Dickerson told analysts on a post-earnings call.
Memory chip maker, Micron's MU share prices have plunged 13.5% over the past week (read: Tech ETFs Tumble: Should You Buy the Dip? ).
This space is moving toward a more noteworthy decline, per a semiconductor analyst at CLSA. His predictions are based on the combination of several factors like slowing demand for memory chips, rising inventory levels and falling prices, contributing to a cyclical downturn in the sector. There are other analysts who are in agreement and believe that trade tariffs also have a say in it, which will lead to an earnings dip of nearly 25% (read: Tech Sell-Off, New Tariff Threat Put Low Beta ETFs in Focus ).
As per Gartner, the corrections in memory market will result in declining revenues for this sector in 2019.
However, the positives were that Q2 resulted in $17.9 billion sales worldwide, which reflected an increase of 6% over Q1 and 20.5% year over year. Also, according to the recently published WSTS industry forecast, annual growth is estimated at 12.4% for 2018 and 4.4% for 2019.
As the sector faces a downturn after shining for nearly two years, the following ETFs may see sell-offs in the near future. Zacks has a High risk outlook toward all these ETFs:
SOXX
It tracks the PHLX Semiconductor Sector Index. There are 30 holdings in the basket and Qualcomm QCOM holds the top weight of 9.72%. AUM is $1.58 billion and expense ratio is 0.47%.
VanEck Vectors Semiconductor ETFSMH
It tracks the MVIS US Listed Semiconductor 25 Index. There are 25 holdings in the basket and Taiwan Semiconductor Manufacturing Co TSM holds the top weight of 9.20%. AUM is $1.08 billion and expense ratio is 0.35%.
SPDR S&P Semiconductor ETFXSD
It tracks the S&P Semiconductor Select Industry. There are 34 holdings in the basket and Advanced Micro Devices AMD holds the top weight of 5.79%. AUM is $328 million and expense ratio is 0.35%.
Invesco Dynamic Semiconductors ETFPSI
It tracks the Dynamic Semiconductors Intellidex Index. There are 30 holdings in the basket and Advanced Micro Devices holds the top weight of 5.70%. AUM is $287.7 million and expense ratio is 0.61%.
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QUALCOMM Incorporated (QCOM): Free Stock Analysis Report
Advanced Micro Devices, Inc. (AMD): Free Stock Analysis Report
VANECK-SEMICON (SMH): ETF Research Reports
SPDR-SP SEMICON (XSD): ETF Research Reports
PWRSH-DYN SEMI (PSI): ETF Research Reports
ISHARS-PHLX SEM (SOXX): ETF Research Reports
NVIDIA Corporation (NVDA): Free Stock Analysis Report
Micron Technology, Inc. (MU): Free Stock Analysis Report
KLA-Tencor Corporation (KLAC): Free Stock Analysis Report
Applied Materials, Inc. (AMAT): Free Stock Analysis Report
Taiwan Semiconductor Manufacturing Company Ltd. (TSM): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
