Bet Against Chip Stocks Boosts Popular ETF SOXS

After struggling this year, the fund ekes out weekly gain and 2023 inflows surge past $1 billion.

One of the most popular exchange-traded funds of the year managed to eke out a gain this week despite betting against some of the market’s hottest stocks.  

The Direxion Daily Semiconductor Bear 3X Shares (SOXS) has had inflows of $1.3 billion year to date, larger than all but 19 other U.S.-listed ETFs, according to ETF.com data. 

SOXS is a potent tool for investors seeking to profit from a decline in semiconductor stocks. The fund offers 3x inverse exposure to the ICE Semiconductor Index, the same index tracked by the $6.8 billion iShares Semiconductor ETF (SOXX). 

But while SOXX and other ETFs that offer bullish exposure to semiconductor companies haven’t attracted much in the way of inflows this year, it’s been a different story for SOXS. The fund’s $1.3 billion haul makes up the majority of its $1.8 billion of assets under management. 

The inflows suggest that at least some investors are bearish on semiconductor stocks, a group that includes the red-hot Nvidia Corp. Nvidia is the largest holding in the ICE Semiconductor Index, making up more than 10% of SOXX. 

Yet even after accounting for Thursday’s 14% pop in shares of Nvidia, SOXS is holding onto a 7% gain for the week. 

That’s the advantage of betting against a basket of stocks with an ETF versus an individual stock with a traditional short position. 

Still, the more diversified approach hasn’t helped SOXS for most of this year. The fund is down a whopping 42% on a year-to-date basis, which compares to a 16.5% gain for the vanilla SOXX. 

Chip companies have benefited from the rebound in growth stocks this year. They’ve also been buoyed by the hype surrounding the generative artificial intelligence technologies that took the world by storm this year.  

Those AI models are often trained on computers running chips known as GPUs that are designed by Nvidia and competitor Advanced Micro Devices. 

On Thursday, Nvidia reported fourth-quarter revenues of $6.05 billion, down more than 20% from a year ago, but slightly ahead of analysts’ estimates. 

A 46% plunge in sales at the company’s gaming unit was largely responsible for the overall revenue decline, but investors were more keyed in on the 11% jump in revenues at the company’s data center unit—a segment that includes sales of AI chips. 

After Thursday’s pop, Nvidia’s year-to-date gains now stand at nearly 60% and are a big reason SOXS has fallen so hard this year. 

Still, investors aren’t abandoning their bearish bet. On Thursday, another $78 million flowed into SOXS. 

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