Each week a team member from Nasdaq Global Indexes provides insight into what is happening across a variety of investment theses. From index and ETF performance, to analysis of market trends, our experts will cover what’s hot in the world of passive investment strategies.
This week, Mark Marex, CFA, discusses the Nasdaq PHLX Semiconductor Index (SOX) and its performance:
- The Nasdaq PHLX Semiconductor Index (SOX) launched in 1993 and has recently been reflecting a transformative period for the semiconductor industry. There have been a number of changes in its biggest constituents as a result of new innovation meeting the needs of today’s thematic tech landscape, including Cloud, Cyber, Biotech, Automotive and AI. The index is modified market-cap weighted, with its top 5 components capped at 8%, and the rest capped at 4%.
- Out of 30 members in the index, the top 15 constituents accounted for 80% of the index weight at the end of August 2020. The top 5 components of the SOX Index include NVIDIA (NVDA), Qualcomm (QCOM), Texas Instruments (TXN), Broadcom (AVGO), and AMD (AMD). Surprisingly, the pioneer of the space Intel (INTC) is the 6th largest holding despite remaining 1st in revenue.
- With Intel losing its grip on the semiconductor market, NVIDIA has likely become the most important company in the index and in the industry. After pioneering semiconductor technology for graphics processing and becoming widely known for its strengths in PCs and gaming, NVIDIA has recently expanded its reach to multiple other fast-growing sectors including automotive (e.g. driver assistance technologies, infotainment systems, etc.) and anything AI-related. Its recently announced proposal to acquire Arm Limited represents the largest-ever deal in the semiconductor space, and would cement its status as the most dominant firm.
- In addition to NVIDIA, AMD has been quickly catching up to Intel and is on its way to potentially becoming the 2nd most important firm. Unsurprisingly, NVIDIA and AMD have led in year-to-date price performance, both more or less doubling after registering very strong 2019 returns as well.
- While the SOX Index has not been able to match the performance of the Nasdaq-100 Index (NDX) on a year-to-date basis, it is still neck-in-neck on a trailing 3 year basis.
- For investors, the Nasdaq PHLX Semiconductor Index ETF AUM is up 120% from late March lows. Overall AUM is dominated by the iShares PHLX Semiconductor ETF (SOXX).