Chip Stocks See Big Two-Day Rally After 2015: ETFs In Focus

After witnessing their worst year since 2011 dragged down by U.S.-China trade war and waning demand for memory chips, semiconductor stocks showed solid signs of a rebound over the last two trading days. This is especially true as the PHLX Semiconductor Index jumped nearly 6.4%, marking its biggest two-day rally since 2015. In particular, Advanced Micro Devices (NASDAQ:AMD) and Nvidia (NASDAQ:NVDA) led the way higher.

Solid jobs data as well as Powell’s comments, which erased fears of a tighter monetary policy in the near term, have spread overall optimism in the broad market. Additionally, the resumption of the latest round of negotiations between officials from Washington and Beijing on the trade policy added to the strength (read: 5 Sector ETFs & Stocks to Shine on Upbeat December Jobs Data).

Further, the international Consumer Electronics Show, or CES -- one of the biggest events in the world of technology -- in Las Vegas will continue to propel stocks higher as a large number of companies will come up with their future plans having hot themes such as artificial intelligence, autonomous driving, smart homes, virtual and augmented reality, smartphone unit expectations and the transition to 5G networks.

ETF Impact

Superb trading in the stock world also pushed semiconductor ETFs higher in the last couple of days. In particular, iShares PHLX Semiconductor ETF SOXX, VanEck Vectors Semiconductor ETFSMH, Invesco Dynamic Semiconductors ETF (TO:PSI) and SPDR S&P Semiconductor (NYSE:XSD) ETF XSD climbed more than 4% each in two days (see: all the Technology ETFs here).

Below we profile these ETFs in detail and discuss some of the specifics behind their recent jump:

SOXX

This ETF follows the PHLX SOX Semiconductor Sector Index and offers exposure to 30 firms with each accounting for less than 8.6% share. It has amassed $1.1 billion in its asset base and charges 47 bps in fees a year.

SMH

This fund provides exposure to 25 securities by tracking the MVIS US Listed Semiconductor 25 Index. It is heavily concentrated on the top two firms with double-digit exposure each while other firms hold less than 5.7% of assets. The product has managed assets worth $784.2 million and charges 25 bps in annual fees and expenses.

PSI

This fund tracks the Dynamic Semiconductor Intellidex Index, holding 30 securities in the basket with none making up for more than 5.5% of assets. The product has so far amassed $155.9 million in its asset base while charges a bit higher fee of 61 bps per year from investors (read: Biggest ETF Stories of 2018 Worth Watching in 2019).

XSD

This fund provides equal-weight exposure to 35 firms by tracking the S&P Semiconductor Select Industry Index. The fund has accumulated $233.4 million in AUM and charges 35 bps in fees per year.



What Lies Ahead?

The two-day-gain has propelled semiconductor ETFs into green for the year, suggesting good tidings for the funds in the near term. Though global semiconductor sales have has slowed somewhat in recent months, 2018 revenues through November surpassed the annual 2017 sales. The industry is on track to record double-digit annual growth for 2018.

Semiconductors are the most important drivers of overall technology growth as these are used in cars, electronic gadgets, planes and weapons. Rapid adoption of cloud, Internet of Things, autonomous cars, gaming, wearables, VR headsets, drones, virtual reality devices, artificial intelligence, cryptocurrencies, and other advanced information technologies will fuel huge growth in the space (read: Winning ETF Strategies for 2019).

Additionally, the deployment of 5G (fifth-generation) technology — the next wireless revolution — will likely create further opportunities. The waves of mergers and acquisitions will also provide further impetus to the space.

Moreover, the above-mentioned products have a favorable Zacks ETF Rank #3 (Hold), suggesting room for upside.

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