Time to Pick Up Your SOXX?

This semiconductor ETF is outperforming, and signs suggest it’s got momentum.

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Reviewed by: Andrew Hecht
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Edited by: Andrew Hecht

The iShares Semiconductor ETF (SOXX) appears to have returned to its old ways. That is, its market-beating ways. 

With high-flying Nvidia Corp. as the exchange-traded fund’s top holding—the stock has nearly doubled in 2023—SOXX is soaring. It’s added 24% so far this year through March 28, handily beating the 3.9% gain in the SPDR S&P 500 ETF Trust (SPY). The fund has been beating SPY for the past few years, although going back even further, SPY has generated better returns. 

SOXX is highly liquid. At around its current $420 per share, the ETF had around $7.63 billion in assets under management. It trades an average of over 910,000 shares daily and charges a 0.35% expense ratio. The blended $4.37 annual dividend translates to a 1.02% yield.  

A little background on semiconductors. The silicon chips packed with integrated circuits are essential components in electronic devices that enable advances in nearly everything: communications, computing, health care and so on. A semiconductor has an electrical conductivity value between a traditional copper conductor and an insulator, like glass. The resistivity decreases as the temperature rises, the opposite of the conductive metals.  

Gallium arsenide, germanium and silicon are critical semiconductor components. Electronic circuit fabrication uses silicon, while solar cells and laser diodes require gallium arsenide. Transistors and other electronic devices tend to require germanium.  

 

Taiwan Semi Exposure 

Source: etf.com 

 

SOXX also has a 3.55% exposure to Taiwan Semiconductor, the world’s leading semiconductor foundry, an industry term for manufacturing integrated circuits on behalf of customers.  

While the fund underperformed the S&P 500 last year, it’s making up those losses. 

The S&P 500 is the most diversified U.S. stock market index. In 2022, SPY fell 19.5%.  

 

Source: etf.com 

 

The chart shows the SOXX dropped 29% in 2022, underperforming SPY. In 2022, pandemic-related supply chain bottlenecks and shutdowns created semiconductor shortages, weighing on the sector’s revenues. In 2023, supplies and prices increased, supporting profits and share prices.  

Geopolitical Considerations 

The Chinese-Russia alliance injects a geopolitical angle, with respect to Taiwan Semiconductor. China considers Taiwan a breakaway country that belongs under Beijing’s umbrella, and it’s made no secret about its reunification ambitions.

 

Source: companiesmarketcap.com 

 

The above chart shows Taiwan Semiconductor’s market cap is second only to Nvidia, and Taiwan Semiconductor’s annual revenue is second to Samsung’s. In last year’s fourth quarter, the company had a 58.5% global semiconductor foundry market share.  

As Taiwan Semiconductor is a world leader, China’s designs on the island nation pose a significant threat to peace in the region and worldwide semiconductor supplies.  

Supply Shortages Loom 

Semiconductors are critical for technological advances in a wide range of industries and essential for worldwide consumer products.  

Inflation at the highest level since the 1980s has caused production costs to rise. Meanwhile, rising prices and supply concerns over potential issues surrounding Taiwan should underpin demand. The trend in the stock market has been bearish, and investors are searching for companies with proven track records and profits.  

 

Source: etf.com 

 

The above chart of etf.com’s fund flow tool shows $292.2 million has flowed into SOXX since the beginning of 2023. The ETF traded to a $287.82 low in October 2022, where it found a bottom. Over the past five months, the semiconductor fund has made higher lows and higher highs and was sitting near the most recent $442.89 peak on March 24. 

The trend is always your best friend in markets, and SOXX’s path of least resistance remains higher, as semiconductors are essentials.  

 

Andrew Hecht is a Nevada-based writer and analyst covering stocks, bonds, foreign exchange, cryptocurrency and raw material markets. 

Andrew Hecht is a Nevada-based writer and analyst covering stocks, bonds, foreign exchange, cryptocurrency and raw material markets. He has over four decades of experience in markets across all asset classes, concentrating on commodity markets. Hecht was a senior trader at Salomon Brothers in the 1980s and 1990s, running sales and trading businesses. In 2013, McGraw Hill published his book, “How to Make Money in Commodities."