ETF Of The Week: Semiconductor Fund Sizzles

Even in the face of trade war woes, VanEck's semiconductor ETF sees strong asset growth.

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Reviewed by: Lara Crigger
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Edited by: Lara Crigger

Welcome to ETF Of The Week, a designation given to the most newsworthy or notable fund of the past seven days.

The $1.3 billion VanEck Vectors Semiconductor ETF (SMH) has had a very good week. How long that lasts, however, may be all up to President Trump.

Over the past seven days, assets in SMH have risen 26%, as investors poured $284 million into the fund. That's a far cry from the massive outflows SMH saw back in June, when the fund lost 45% of its total assets in a week (read: "Semiconductor ETF Sees Supersized Outflows").

But big flows in and out are par for the course for this fund. Large and liquid, SMH is a trader's dream, with its pennywide spreads and supermassive volume. On average, SMH trades roughly half its assets—$614 million—in volume daily, or roughly 5.9 million shares a day. That's equivalent to 61% of the fund's total shares outstanding.

What's more, as ETF.com’s Sumit Roy covered earlier this week, SMH also carries the highest short-interest percentage of all ETFs, at 212% (read: "Most Shorted ETFs").

Sky-High Returns … For Now 

Year-to-date, SMH has returned 8.2% (bad news for all those short-sellers, I suppose). Over a one-year basis, the fund has returned 25%, well outpacing the broader market:

 

Source: StockCharts.com; data as of Aug. 2, 2018

 

It's unclear how long that outperformance can last. Like other semiconductor ETFs, SMH is likely to feel the pinch of the Trump administration's tariffs levied on Chinese goods; in fact, that's precisely why investors dumped the fund back in June. Back then, Trump had announced tariffs on $50 billion worth of goods, including some that would be levied on semiconductors.   

On Thursday, the Trump administration announced plans to bump up that amount to $200 billion—not good news for SMH.

Trade War Hits US Chipmakers, Too

With 26 holdings, SMH is highly concentrated into a few, overwhelmingly U.S.-based mega-cap chip companies. Taiwan Semiconductor and Intel each make up 9% of the portfolio, followed by NVIDIA, at 6%.

Yet SMH's American tilt doesn't insulate the fund from a trade war, since many semiconductors fabricated in the U.S. are built using Chinese components and chipmaking equipment. In fact, many U.S. companies could even end up paying tariffs on their own chips, since Chinese companies handle much of the packaging and quality testing for chips made in the States.

Will this latest salvo in the Trump trade war lead SMH to bleed more cash? Only time will tell—and our fund flows reports, of course. Keep checking back to see if history repeats itself.

Contact Lara Crigger at [email protected]

Lara Crigger is a former staff writer for etf.com and ETF Report.