The beginning of 2015 saw no let-off to the semiconductor rally that started last year as industry fundamentals remained strong and investors continued to prefer value-centric traditional stocks. However, the industry witnessed some pull backs on not-so-encouraging earnings and uninspiring guidance early last month though it rebounded once again (read: Has Earnings Put a Halt to the Rally in Semiconductor ETFs?).
While optimism is certainly rife, the sales warning from Intel Corp. (INTC - Free Report) dampened investors’ mood making them cautious on the stock as well as the broad sector.
The world’s largest chipmaker reduced its revenue outlook for the ongoing first quarter, citing falling demand for business PCs, lower inventory levels across the PC supply chain, tough currency translations and challenging economic conditions, particularly in Europe. It is slated to release its first quarter results on April 14.
The company now projects revenue for Q1 to come in at $12.5–$13.1 billion, down from the previous guidance of $13.2–$14.2 billion and the Zacks Consensus Estimate of $13.49 billion.
Following its sluggish outlook, Intel shares plunged as much as 5.4% in yesterday’s trading session on elevated volumes of nearly 3.5 times the daily average. Most of the analysts revised their target prices downward on the stock. This move undid the positive sentiments on the chipmaker and left many feeling bearish on the stock’s future (read: A Comprehensive Guide to Semiconductor ETF Investing).
Further, the market-research firm IDC also cut its expectation for worldwide PC shipments for this year. The research firm projects global shipments to fall 4.9%, wider than the 3.3% decline projected previously.
The rough trading in INTC also pushed a few other PC-related stocks down. Some of the players include Microsoft (MSFT), Advanced Micro Devices (AMD), STMicroelectronics (STM) and Qualcomm (QCOM). These stocks dropped 2.3%, 2.8%, 2.9% and 1.3%, respectively, last session. Meanwhile, Hewlett-Packard (HPQ) recovered at the close after falling 3.4% during the session.
Given this, semiconductor ETFs are in focus in the coming days and investors should closely watch the movement of these funds post the Intel action (see: all the Technology ETFs here).
ETFs in Focus
The most popular product in the sector, iShares PHLX Semiconductor ETF ((SOXX - Free Report) ), lost only 0.03% at the close yesterday. The ETF follows the PHLX SOX Semiconductor Sector Index and offers exposure to 30 firms. Intel takes the third spot in the basket with nearly 6.78% share. The fund has $594.9 million in its asset base and charges an expense ratio of 47 bps.
Market Vectors Semiconductor ETF ((SMH - Free Report) ), having amassed $316.5 million, was down 0.6% at the close yesterday. The fund provides exposure to 26 securities by tracking the Market Vectors US Listed Semiconductor 25 Index. Intel takes the top position with 17.4% of assets. The product charges a low fee of 35 bps a year from investors.
The other two ETFs – SPDR S&P Semiconductor ETF ((XSD - Free Report) ) and PowerShares Dynamic Semiconductors Fund ((PSI - Free Report) ) – added 0.5% and 0.3%, respectively, in the last trading session. XSD tracks the S&P Semiconductor Select Industry Index and holds 46 stocks in the portfolio. Intel accounts for only 1.9% allocation. The fund has accumulated $214.6 million in AUM and charges 35 bps in fees per year (read: 3 ETFs Surging at Start of 2015).
On the other hand, PSI follows the Dynamic Semiconductors Intellidex Index. Holding 30 securities, Intel makes up for 4.58% share in the basket. The ETF has $55 million in AUM and charges 63 bps in annual fees.
It seems that Intel’s tough ride cannot halt the rally in semiconductor ETFs. This is especially true as all the four products have been on a rising trend over the past three months against a 14.4% decline in the share price of Intel (read: Nasdaq Hits 5,000 on Tech Mergers: Semiconductor ETFs Surge).
In particular, XSD and PSI having little exposure to Intel have gained in the double digits. The outperformance is expected to continue in the month ahead given that the products have a Zacks ETF Rank of 1 or ’Strong Buy’ rating.
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