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Here's Why Semiconductor ETFs Are Looking Attractive for Q4

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The semiconductor industry has been increasingly gaining investors attention backed by its bright prospects. Per International Data Corporation (IDC) data, global semiconductor industry sales are expected to increase 17.3% in 2021, up from a rise of 10.8% in 2020. Overall, the semiconductor market is projected to be worth around $600 billion by 2025, witnessing a CAGR of 5.3% through the forecast period (according to the IDC report).

The IDC report further states that the chip market is seeing strength from growing end markets like mobile phones, notebooks, servers, automotive, smart home, gaming, wearables, and Wi-Fi access points.

The revolutionary 5G platform is expected to act as a major catalyst to semiconductor revenues in the mobile phone market, per the IDC report. The segment is expected to soar 128%, with total mobile semiconductor revenues up 28.5%. The X86 server chips are projected to deliver revenue growth of 24.6%. The notebook market sales are expected to be up 11.8%, while game consoles, smart home, and wearable semiconductors are likely to rise by 34%, 20% and 21%, respectively. Meanwhile, automotive semiconductor revenues are projected to rise 22.8%.

The coronavirus-induced work-from-home and web-based learning trends have 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.

The companies that provide design and other components for chip making are expected to benefit from the scenario as well. Per Technavio report, the data center market is projected to be valued at $519.34 billion during the 2021-2025 forecast period, witnessing a CAGR of 21% on the back of higher demand for cloud services and digitization. Meanwhile, shortage of semiconductors is affecting several industries, with carmakers and electronic goods manufacturers bearing the brunt of it. In fact, the advisory firm Forrester projects the chip shortage to last through 2022 and into 2023, which remains a concern.

However, an accelerated coronavirus vaccine distribution, solid fiscal stimulus support and the reopening of the U.S. economy may lead to faster U.S. economic recovery from the coronavirus pandemic-led economic slowdown.

The progress in coronavirus vaccine rollout is presenting a strong case in favor of a faster return to normalcy and economic recovery. The FDA has approved emergency use of a booster dose of the Pfizer Inc. (PFE) and BioNTech SE (BNTX) COVID-19 vaccine. President Joe Biden has also outlined a very effective plan to accelerate the vaccination rate and control the coronavirus outbreak. He has made it mandatory for federal employees to get the COVID-19 vaccination, per a CNBC article. The Biden government will also issue guidelines to the Labor Department for imposing vaccine mandates for employers with more than 100 employees or run weekly tests.

Semiconductor ETFs Poised to Gain

Growing adoption of cloud computing and the ongoing infusion of AI, machine learning and IoT are expected to keep the sector brewing with opportunities in 2021. Investors seeking to make the most of the surging space in a diversified way could consider the following ETFs.

iShares Semiconductor ETF (SOXX - Free Report)

This ETF follows the ICE Semiconductor Index and offers exposure to 30 firms. The fund has amassed $7.52 billion in its asset base. It charges 43 basis points (bps) in fees a year from investors. It flaunts a Zacks ETF Rank #1 (Strong Buy), with a High-risk outlook (read: Semiconductor ETFs Soaring to New Heights).

VanEck Semiconductor ETF (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 $6.21 billion and charges 35 bps in annual fees and expenses. The fund carries a Zacks ETF Rank #1, with a High-risk outlook (read: 4 Chip ETFs You Should Not Ignore).

First Trust Nasdaq Semiconductor ETF (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 $78.2 million in AUM. The expense ratio is 0.60%. FTXL has a Zacks ETF Rank #1.

Invesco Dynamic Semiconductors ETF (PSI - Free Report)

This fund tracks the Dynamic Semiconductor Intellidex Index, holding 31 securities in its basket. The product has AUM of $709.4 million. Expense ratio is 0.57%. PSI sports a Zacks ETF Rank #1, with a High-risk outlook (read: Buy the Dip With These Top-Ranked ETFs).

SPDR S&P Semiconductor ETF (XSD - Free Report)

This fund tracks the S&P Semiconductor Select Industry Index. The fund has AUM of $1.16 billion. It charges 35 bps in fees per year. The product has a Zacks ETF Rank #1 with a High-risk outlook.

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