Semiconductor stocks were the star performers of the broader technology space in 2016 thanks to upbeat earnings, consolidation activities and innovative technologies. Areas like autonomous cars, 3D printers, fitness devices and IoT fueled growth in the sector, offsetting the otherwise-saturating businesses like PCs and smartphones.
As a result, semiconductor ETFs including VanEck Vectors Semiconductor ETF SMH, iShares PHLX Semiconductor SOXX and PowerShares Dynamic Semiconductors ETF (TO:PSI) advanced about 43.6%, 46.9% and 62.2%, respectively, in the last one year (as of April 19, 2017) (read: Will Semiconductor ETFs Repeat This Year's Success in 2017?).
However, things have moderated in the space lately with most ETFs being in the red in recent trading sessions. Against this backdrop, let’s find out if semiconductor ETFs can be promising bets over the long horizon and if investors should buy this dip (read: 5 Hottest Tech ETFs of 2017).
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Rebound in PC Sales
The PC market, which witnessed shipment declines over the past few years, seems to be on the verge of a turnaround. However, as per research agency IDC, global shipments of PCs increased for the first time on a year-over-year basis in the first quarter of 2017 in five years. The agency noted that PC shipments grew 0.6% year over year in Q1 of 2017. Though the PC market is not extremely active, it is in a stabilizing mode.
Rise of 4G LTE
Though shipments of smartphones have cooled down lately, the continued shift toward 4G LTE in high-end smartphones has boosted wafer demand of advanced process technologies, as per the research agency Gartner. Plus, the rapid deployment of fingerprint sensors and active-matrix dynamic light-emitting diodes (AMOLEDs) by Chinese smartphones should also give the space a boost, as per several research agencies including Gartner. Recently the agency indicated that consumer applications will likely make up for about 63% of the overall IoT applications in 2017.
Bullish Prediction
The World Semiconductor Trade Statistics (WSTS) predicts the global semiconductor market to be up 6.5% to $361 billion in 2017 and 2.3% to $369 billion in 2018. This growth is expected to be realized after a record year in 2016. The worldwide semiconductor market grew 1.1% in 2016 to $338.9 billion.
Value-Centric Area
In any case, semiconductor is the value-centric traditional tech area that is likely to have an upper hand in an edgy investing environment. Moreover, the semiconductor space is consolidating rapidly with a number of deals announced lately (read: Time to Buy Semiconductor ETFs on Qualcomm-NXP Deal?).
Some Technicals are in Favor
If we go by technical indicators, the trend looks supportive. SOXX, PSI and SMH have a positive weighted alpha of 44.10, 59.60 and 40.30. Since a positive weighted alpha hints at more gains, there is definitely some promise for investors who want to ride this promising space via ETFs.
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ISHARS-PHLX SEM (SOXX): ETF Research Reports
PWRSH-DYN SEMI (PSI): ETF Research Reports
VANECK-SEMICON (SMH): ETF Research Reports
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Zacks Investment Research