With earnings season now underway, investors need to weigh how they want their assets and portfolio positioned for the rest of 2019. The S&P 500 was last seen up 16% so far in 2019, and the Nasdaq-100 was up by an even stronger 21%.
While technology is too broad of a sector to cover all at once, the gain in most of the major semiconductor stocks has been more than impressive. It turns out that every single one of the semiconductor-related exchange-traded funds (ETFs) has outperformed the S&P 500 and the tech-heavy Nasdaq-100.
This requires the investing community and traders alike to think about how to be positioned for the earnings season. This is all happening at a time when the market gains are based in part on a China trade-deal that has not yet occurred, and while the global growth slowdown is happening and industry forecasters are expecting weak semiconductor trends to last for another quarter or two in 2019.
While shares of Qualcomm Inc. (NASDAQ: QCOM) were leading the sector with a massive two-day gain after it settled its patent disputes with Apple, and with Intel Corp. (NASDAQ: INTC) abandoning its 5G smartphone modem ambitions, it is important to consider the big picture for semiconductor stocks, now that they are up so much. Analysts are even calling for more upside in Qualcomm, based on forward expectations. Oh, and we can’t forget that the bull market is more than 10 years old and the financial media keeps spooking investors about the next recession coming sooner rather than later.
Also worth consideration is that Micron Technology Inc. (NASDAQ: MU), the domestic king of dynamic random access memory (DRAM) and now deep into flash, escaped its earnings in late March unscathed despite having recovered handily from the late 2018 sell-off that spooked investors. This offered cover for related chip names in a recent research montage, and Micron was last seen up over 7% since the earnings report on March 20, as well as 35% higher so far in 2019. Does it matter that its shares are still down 17% from a year ago?
But not all the semiconductor and chip-related ETFs are created equal. 24/7 Wall St. screened the ETFDB.com arena of the top semiconductor ETFs to see how and why each one is different in performance. Fees can always impact performance, particularly over time (higher fees tend to eat away at performance than lower fees).
According to the ETFDB.com screen for semiconductors, the iShares PHLX Semiconductor ETF (SOXX) is now the leader, with over $1.2 billion in assets. Its gain so far in 2019 was over 33% on last look. This ETF is shown to have a 0.47% expense ratio, and it is being helped the most with Qualcomm dominating the fund with a 9.28% weighting. The other dominant weightings are Nvidia (8.58%), Broadcom (8.13%), Texas Instruments (7.74%) and Intel (7.53%).
Then there is the VanEck Vectors Semiconductor ETF (NYSEARCA: SMH), with $865.5 million in assets. This is not technically the oldest ETF in chips any longer, but it would be if you counted the prior period that this was under the antiquated HOLDRs brand of ETFs that date back to the tech boom-to-bubble burst. This ETF has a lower expense ratio of 0.35%, and its year-to-date performance is 32.7%. This fund is dominated by Intel, with a 13.30% weighting, followed by Taiwan Semi (9.25%), Nvidia (5.95%), Texas Instruments (5.77%) and Qualcomm (5.67%).
To show just how volatile the chip stocks have been in an even grander scale, there is the Direxion Daily Semiconductor Bull 3x Shares ETF (SOXL), which is up 117% this year because it is triple-leveraged. That fund comes with a 0.99% expense ratio, and its leverage is shown to be based on the top five holdings: Qualcomm (8.74%), Nvidia (8.09%), Broadcom (7.67%), Texas Instruments (7.29%) and Intel (7.10%).
There is also the SPDR S&P Semiconductor ETF (XSD), with a 0.35% expense ratio, that is up 34.5% so far in 2019. Of its 35 components, no single stock dominates the entire portfolio. ETFDB.com shows the weightings as follows: Qualcomm (3.89%), Marvell (3.80%), Cree (3.77%), AMD (3.75%) and Nvidia (3.69%). This ETF is more broad-based, but it has just $364.7 million in assets.
Invesco Dynamic Semiconductors ETF (PSI) has $199 million in assets, so it is smaller than its peers, but it is not the smallest chip-related ETF. It was last seen up 30.6% year to date and has a 0.61% expense ratio. This ETF also has Qualcomm as its largest weighting at 6.34%, followed by Broadcom (5.34%), Xilinx (5.33%), Intel (5.19%) and Texas Instruments (5.14%).
As you can see, the semiconductor segment within technology has performed quite well in 2019. Many of these stocks and ETFs are still down considerably from their highs of 2018, but the sharp recovery in 2019 has vaulted them higher than the already-high stock market gains.
Investors are trying to look beyond the current quarter and perhaps even the summer, but the efficient market hypothesis has failed in many instances over the years. Investors should expect that companies that are raising expectations to be treated better than companies that are not, and that means there could easily be a very mixed bag when it comes to earnings reactions among the top semiconductor stocks.
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