The semiconductor market has held its ground strongly amid the coronavirus mayhem. The PHLX Semiconductor Index has been up 57.3% and the Dow Jones U.S. Semiconductors Index has risen 50.4% over the past year, in comparison to the broader S&P 500 index’s 17.6% increase.
The semiconductor space has been gaining from expanding digitization and growing dependency on the Internet owing to some new normal trends like online shopping, work from home, digital payments, digitization of healthcare, growing favor for video gaming and many more. In fact, growing adoption of cloud computing, and ongoing infusion of AI, machine learning and IoT are expected to keep the sector brewing with opportunities in 2021.
According to the
latest data from the Semiconductor Industry Association (or SIA) global semiconductor sales were $39.4 billion in November 2020, up 7% year over year. This marked a new milestone of its “highest percentage since March.” Also, sales inched up 1.1% from October 2020. Regionally, sales rose 12.5%, 6.5%, 6.5% and 5.1% year on year in the Americas, China, Asia Pacific, and Japan, respectively. However, sales edged down 0.7% on a year-over-year basis in Europe. Will the Semiconductor Space Remain Strong?
The coronavirus pandemic continues to wreak havoc all over. The outbreak has compelled people to stay indoors and work remotely. Also, the pandemic has resulted in some changes in lifestyle preferences. Even as the global economy starts to reopen in phases and social-distancing restrictions are being eased, people will try to minimize the human-to-human contact.
In such a scenario, cloud computing’s popularity is shooting up, and altering the way people are managing data, communication and business. Cloud computing is seeing increasing usage globally as it allows data interoperability in a scalable, cost-efficient way through data collection, processing, analyzing and sharing across platforms.
Notably, the coronavirus-induced work-from-home and web-based learning trends have also spurred demand for chips from PC manufacturers and data-center operators. Data-center operators have increased their capacities to meet the surging demand for cloud services. The companies that provide design and other components for chip making are expected to gain from this trend.
Going on, the increasing importance of Hybrid cloud among enterprises is attracting investments from large public cloud providers, including Amazon Web Services, Microsoft Azure, Google Cloud, International Business Machines and Oracle. The data-center chip providers will likely gain from this trend.
Moreover, strong adoption of autonomous vehicles, gaming, wearables, drones and VR/AR devices is fueling significant growth in the semiconductor area. Robust demand for electric vehicles (EVs) and plug-in hybrids also deserve a mention here. Markedly, EVs require complex electronic systems composed of advanced semiconductors. Furthermore, the increased deployment of 5G technology — the next-generation wireless revolution — is likely to support growth.
Semiconductor ETFs Poised to Gain
According to latest
World Semiconductor Trade Statistics (WSTS) data, the global semiconductor market is now projected to rise 8.4% in 2021, based on double-digit growth of memory and optoelectronics. The forecast for 2021 is more than the previously-projected growth of 6.2%, made by the WSTS in July.
Investors seeking to make the most of the surging space in a diversified way could consider the following ETFs.
iShares PHLX Semiconductor ETF ( SOXX Quick Quote SOXX - Free Report)
This ETF follows the PHLX SOX Semiconductor Sector Index and offers exposure to 30 firms. The fund has amassed $5.03 billion in its asset base and trades in three-months average volume of around 505,000 shares. It charges 46 basis points (bps) in fees a year from investors. It flaunts a Zacks ETF Rank #1 (Strong Buy), with a High-risk outlook (read:
Bitcoin Tests $40K, May Hit "$50K to $100K": ETFs to Play). VanEck Vectors Semiconductor ETF ( SMH Quick Quote SMH - Free Report)
This fund provides exposure to 25 securities by tracking the MVIS US Listed Semiconductor 25 Index. The product has managed assets worth $4.05 billion, and charges 35 bps in annual fees and expenses. It trades with three-months average volume of 2.5 million shares. The fund carries a Zacks ETF Rank #1 with a High-risk outlook (read:
U.S. Manufacturing Rebounds: Sector ETFs That Deserve Thanks). First Trust Nasdaq Semiconductor ETF () FTXL Quick Quote FTXL - Free Report)
This fund seeks investment results that correspond generally to the price and yield, before fees and expenses, of the Nasdaq US Smart Semiconductor Index. FTXL has accumulated $72.9 million in AUM. Average three-months trading volume is light at around 10,000 shares and expense ratio is 0.60%. FTXL has a Zacks ETF Rank #1 (read:
Nvidia Q3 Earnings and Revenues Top: ETFs to Buy) Invesco Dynamic Semiconductors ETF () PSI Quick Quote PSI - Free Report)
This fund tracks the Dynamic Semiconductor Intellidex Index, holding 30 securities in its basket. The product has an AUM of $392 million and sees moderate average three-months trading volume of 23,000 shares. Expense ratio is 0.57%. PSI sports a Zacks ETF Rank #1, with a High-risk outlook (read:
Semiconductor ETFs Up At Least 40% in 2020: More Gains Ahead). SPDR S&P Semiconductor ETF () XSD Quick Quote XSD - Free Report)
This fund tracks the S&P Semiconductor Select Industry Index. The fund has an AUM of $1.04 billion and average three-months trading volume of about 84,000 shares. It charges 35 bps in fees per year. The product flaunts a Zacks ETF Rank #2 (Buy), with a High-risk outlook.
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