The Comprehensive Guide to Semiconductor ETFs - ETF News And Commentary
February 24 2014 - 12:00PM
Zacks
The Semiconductor
Industry serves as a driver, enabler and indicator of technological
progress. As environmental issues have become more of a concern
today, semiconductor devices are being made to reduce power
consumption, reduce heat dissipation, capture solar energy, create
more efficient lighting solutions and so forth.
Manufacturing operations have shifted to Asia over the past decade,
but since innovation remains largely within the country, the sector
is one of the biggest employers of labor, with a corresponding
significant impact on the overall economy. (Read: ETF Asset Flows
Round Up, Gold Rises, Energy Lags)
The consumer and computing markets consume two-thirds of all
semiconductors, which are increasing convergence between these two
markets such that it is getting more difficult to identify which
devices are computing and which consumer.
PC market growth will be moderate in the next few years, more than
made up by growth in mobile devices. Semiconductors for mobile
devices have their own set of unique challenges: greater
functionality and better experience at higher speeds and consuming
less power. They also have to be priced lower. Additionally, a lot
of the growth in the next few years will come from price-sensitive
emerging markets, which is likely to pressure margins.
According to the CEA, tablets and smartphones will be the strongest
drivers of consumer electronics sales this year, with smart watches
and HD TVs also growing strongly off a very small base. With
overall global spending on technology declining 1% this year,
spending on consumer electronics is not expected to be more than
2.4%. (Read: Solid Tesla Earnings Put these ETFs in Focus)
The move to cloud computing and growing data consumption on mobile
devices is leading to strong demand for suitable wireless and
computing networks. This is currently one of the most important
semiconductor markets. Industrial automation, automotive, aerospace
and defense are also consuming a growing number of semiconductors,
but growth prospects in these markets are currently not as
good.
Forecast for 2014
According to World Semiconductor Trade Statistics (WSTS) data,
there should be positive worldwide semiconductor sales growth of
4.1% in 2014, followed by 3.4% growth in 2015. All products and
categories are expected to grow in both years, although wireless
and automotive are expected to grow the strongest and consumer and
computing relatively stable. (Read: Facebook to buy WhatsApp, 3
ETFs to watch)
Playing the Sector Through ETFs
The ongoing transition across multiple served markets makes it
difficult to select winning semiconductor stocks. However,
companies in charge of core manufacturing generally gain whenever
there is market growth. As a result, it could be easier to play the
sector through ETFs that are more heavily weighted to these big
players.(See all technology ETFs here)
For those interested in taking a non-equity look at semiconductors,
we have highlighted a few ETFs tracking the industry below, any of
which could be interesting picks:
Van Eck Market Vectors Semiconductor ETF
(SMH - ETF
report)
The Van Eck Market Vectors Semiconductor ETF was started in 1955 to
replicate the price and yield performance of the Market Vectors
U.S. Listed Semiconductor 25 Index.
This Index tracks the overall performance of 25 of the largest U.S.
listed, publicly-traded semiconductor companies. Some of the
largest holdings include Intel Corp
(INTC - Analyst Report), Taiwan
Semiconductor Manufacturing Company (TSM) and
Texas Instruments (TXN). Its expense ratio is
0.35% and its dividend yields 1.59%.
iShares PHLX Semiconductor ETF
(SOXX - ETF
report)
Founded in 2001, the iShares PHLX Semiconductor ETF is based on
U.S.-listed semiconductor stocks represented by the PHLX
Semiconductor Sector Index.
The top holdings in the ETF include Texas Instruments, Intel Corp,
Qualcomm Inc (QCOM) and Applied
Materials (AMAT). Its expense ratio is 0.48% and its
dividend yields 1.18%.Net assets on Feb 11, 2014 were $322.2
million.
SPDR S&P Semiconductor ETF
(XSD - ETF
report)
Founded in 2006, the SPDR S&P Semiconductor ETF tracks the
S&P Semiconductor Select Industry Index. This is an
equal-weighted ETF comprising 49 stocks with an expense ratio of
0.35% and a dividend yield of 0.52%.
Powershares Dynamic Semiconductors ETF
(PSI - ETF
report)
The Powershares Dynamic Semiconductors ETF was started in 2005 to
track the performance of the Dynamic Semiconductors Intellidex
Index. At least 90% of its assets are invested in stocks that
comprise the Index. Its top holdings include Micron Technology,
Applied Materials and KLA-Tencor. The Fund and the Index
are rebalanced and reconstituted quarterly in February,
May, August and November. Its expense ratio is 0.63% and the
dividend yields 0.58%.
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PWRSH-DYN SEMI (PSI): ETF Research Reports
MKT VEC-SEMICON (SMH): ETF Research Reports
ISHARS-PHLX SEM (SOXX): ETF Research Reports
SPDR-SP SEMICON (XSD): ETF Research Reports
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