ETF Investors Bet Against Sizzling Chip Stock Rally

They’ve plowed around $1.6 billion into SOXS, while pulling $1.7 billion out of SOXL.

Nvidia, Broadcom and other chip companies may be among the hottest stocks in the market today, but ETF investors haven’t been very interested in the rally. In fact, some are betting against the industry.  

Since the start of the year, a net $1.2 billion has flowed into semiconductor ETFs, but $1.6 billion of that has gone into the Direxion Daily Semiconductor Bear 3X Shares (SOXS). As a leveraged, inverse fund, SOXS rises when semiconductor stocks go down, and vice versa. 

As such, it’s had a horrendous year, losing three-quarters of its value.  

By contrast, the Direxion Daily Semiconductor Bull 3X Shares (SOXL), which provides geared, long exposure to semis, is up by 166%, yet investors have pulled $1.7 billion out of the fund. While it’s interesting to see investors in these ETFs take a contrarian view on chip stocks, it’s not the only thing going on.  

Sizzling Rally in Chip Stocks

No doubt, there are investors out there who bought these ETFs this year expecting chip stocks to fall back to Earth after their sizzling rally—and they’ve been wrong. 

But many others purchased them before this year’s rally. SOXL, for instance, had $6.2 billion of inflows last year. It makes sense that some of those investors would take profits after the price of the fund rose more than two and a half times this year.   

Meanwhile, other investors may have purchased these ETFs to hedge existing positions. If someone is overweight Nvidia, they might use SOXS as a counterbalance to that stock.  

So, there are myriad reasons people use these funds, and surface-level flows don’t always tell the full story.  

Outside of SOXS and SOXL, chip stock ETF flows have been relatively neutral. Around $907 million has flowed into the First Trust Nasdaq Semiconductor ETF (FTXL) and $368 million has flowed into the SPDR S&P Semiconductor ETF (XSD).  

On the other hand, investors pulled $164 million and $23 million out of the iShares Semiconductor ETF (SOXX) and the VanEck Semiconductor ETF (SMH), respectively.  

Contact Sumit Roy at [email protected]