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With escalation in trade war between the world’s largest economies, the semiconductor sector has been the worst hit given its significant exposure to China. This is especially true as the Philadelphia Semiconductor Index declined 3.6% on Aug 5, extending the decline to the fifth day – the longest losing streak since October. In fact, the benchmark lost more than 10% in a week.
President Donald Trump unexpectedly imposed a new tariff of 10% on the remaining $300 billion of Chinese goods effective Sep 1. The new duty, which is expected to increase beyond 25% later, will be levied on a long list of goods including smartphones, laptop computers and children’s clothing. With this, the United States will effectively tax all Chinese imports. Meanwhile, China retaliated by allowing the yuan to slip to the lowest level against the dollar in more than a decade. Per Bloomberg News, China has halted imports of U.S. agricultural products (read: Trump Threatens New Tariff: 5 ETF Buying Zones).
Additionally, bouts of weak earnings and outlook also took a toll on the sector. Advanced Micro Devices (AMD - Free Report) cut its full-year forecast while Qualcomm (QCOM - Free Report) gave a disappointing fourth-quarter sales outlook. Western Digital (WDC - Free Report) and ON Semiconductor’s (ON - Free Report) revenues missed expectations. ON Semiconductor also gave a weak outlook for the third quarter and its shares tanked nearly 10% on Aug 5, marking its biggest one-day drop since November 2015.
Moreover, the latest report from the Semiconductor Industry Association shows that global chip sales fell 16.8% year over year in June and 14.5% in the first half of 2019. Gartner expects worldwide semiconductor revenues to drop 9.6% to $429 billion this year, citing a weaker pricing environment for memory and some other chips types, and lower growth in major applications including smartphones, servers and PCs.
Given the bearish trends, the ultra-popular iShares PHLX Semiconductor ETF (SOXX - Free Report) pulled out nearly $162 million in a one-week period through Aug 2, per etf.com. The fund is down nearly 11% over the past five days (read: After Upbeat July, Will Semiconductor ETFs Slump in August?).
Investors could easily tap this trend by considering a near-term short on the semiconductor stocks with inverse ETFs. Currently, there are couple of ETFs that could lead investors to go short on the sector.
This fund offers two times inverse exposure to the daily performance of the Dow Jones U.S. Semiconductors Index. It is an unpopular and illiquid choice in the space with AUM of $6.4 million and average daily volume of around 12,000 shares. Expense ratio comes in at 0.95%. The fund has gained 25.3% in a week.
This ETF offers three times inverse exposure to the PHLX Semiconductor Sector Index, charging investors 95 bps in annual fees. It has amassed about $237.2 million in its asset base while trading in good volumes of 1.1 million shares a day on average. The fund has surged 38.4% in the same timeframe.
Bottom Line
As a caveat, investors should note that such products are suitable only for short-term traders as these are rebalanced on a daily basis (see: all the Inverse Equity ETFs here).
However, for ETF investors, who are bearish on the semiconductor sector for the near term, either of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance, and a belief that “trend is the friend” in this corner of the investing world.
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Short Semiconductor Stocks With These Two ETFs
With escalation in trade war between the world’s largest economies, the semiconductor sector has been the worst hit given its significant exposure to China. This is especially true as the Philadelphia Semiconductor Index declined 3.6% on Aug 5, extending the decline to the fifth day – the longest losing streak since October. In fact, the benchmark lost more than 10% in a week.
President Donald Trump unexpectedly imposed a new tariff of 10% on the remaining $300 billion of Chinese goods effective Sep 1. The new duty, which is expected to increase beyond 25% later, will be levied on a long list of goods including smartphones, laptop computers and children’s clothing. With this, the United States will effectively tax all Chinese imports. Meanwhile, China retaliated by allowing the yuan to slip to the lowest level against the dollar in more than a decade. Per Bloomberg News, China has halted imports of U.S. agricultural products (read: Trump Threatens New Tariff: 5 ETF Buying Zones).
Additionally, bouts of weak earnings and outlook also took a toll on the sector. Advanced Micro Devices (AMD - Free Report) cut its full-year forecast while Qualcomm (QCOM - Free Report) gave a disappointing fourth-quarter sales outlook. Western Digital (WDC - Free Report) and ON Semiconductor’s (ON - Free Report) revenues missed expectations. ON Semiconductor also gave a weak outlook for the third quarter and its shares tanked nearly 10% on Aug 5, marking its biggest one-day drop since November 2015.
Moreover, the latest report from the Semiconductor Industry Association shows that global chip sales fell 16.8% year over year in June and 14.5% in the first half of 2019. Gartner expects worldwide semiconductor revenues to drop 9.6% to $429 billion this year, citing a weaker pricing environment for memory and some other chips types, and lower growth in major applications including smartphones, servers and PCs.
Given the bearish trends, the ultra-popular iShares PHLX Semiconductor ETF (SOXX - Free Report) pulled out nearly $162 million in a one-week period through Aug 2, per etf.com. The fund is down nearly 11% over the past five days (read: After Upbeat July, Will Semiconductor ETFs Slump in August?).
Investors could easily tap this trend by considering a near-term short on the semiconductor stocks with inverse ETFs. Currently, there are couple of ETFs that could lead investors to go short on the sector.
ProShares UltraShort Semiconductors ETF (SSG - Free Report)
This fund offers two times inverse exposure to the daily performance of the Dow Jones U.S. Semiconductors Index. It is an unpopular and illiquid choice in the space with AUM of $6.4 million and average daily volume of around 12,000 shares. Expense ratio comes in at 0.95%. The fund has gained 25.3% in a week.
Direxion Daily Semiconductor Bear 3x Shares (SOXS - Free Report)
This ETF offers three times inverse exposure to the PHLX Semiconductor Sector Index, charging investors 95 bps in annual fees. It has amassed about $237.2 million in its asset base while trading in good volumes of 1.1 million shares a day on average. The fund has surged 38.4% in the same timeframe.
Bottom Line
As a caveat, investors should note that such products are suitable only for short-term traders as these are rebalanced on a daily basis (see: all the Inverse Equity ETFs here).
However, for ETF investors, who are bearish on the semiconductor sector for the near term, either of the above products could make an interesting choice. Clearly, a near-term short could be intriguing for those with high-risk tolerance, and a belief that “trend is the friend” in this corner of the investing world.
Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week. Get it free >>