Semiconductor ETFs Charged Up on Strong Q3 Earnings - ETF News And Commentary

Semiconductors have enjoyed a strong rally this year on encouraging industry fundamentals as well as investors' continued acclaim for value-centric traditional stocks. This trend is likely to continue in the coming months on a string of earnings and revenue beats that trumped the worst sell-off seen early in the month after the diversified chipmaker Microchip Technology (

) warned of frailty in the broad-based semiconductor industry (read:

).

This is especially true as industry primes such as Micron Technology (

), Intel (

), Broadcom (

) and Texas Instruments (

) reported strongly and guided higher, easing the concerns of an industry downturn. In addition, the industry has a solid Zacks Industry Rank at the time of writing, suggesting smooth trading for the space over the coming months.

The memory chipmaker,

, has been the major gainer in the industry as the stock climbed nearly 10% to hit a 52-week high of $34.85 in just two days after it reported fourth-quarter fiscal 2014 earnings on September 25 after the market closed. This is primarily thanks to an encouraging revenue guidance of $4.45–$4.70 billion for the first quarter of fiscal 2015; the mid-point of which was well above the Zacks Consensus Estimate of $4.48 billion at the time of issuing the guidance.

Though earnings per share of 82 cents came in line with the Zacks Consensus Estimate, revenues of $4.23 billion outpaced our estimate by $4.17 billion. The shares are nevertheless down 2% since the earnings announcement.

, the world's largest chipmaker, has gained nearly 3% since its third-quarter earnings announcement on October 14 after the closing bell. The company topped the Zacks Consensus Estimate by a penny on earnings and $0.17 billion on revenues thanks to a stabilizing PC market and improving data center business. Further, the company projects revenues in the range of $14.2–$15.2 billion, the mid-point of which is in line with our current estimate (read:

).

reported earnings of 76 cents surpassing our estimate by a nickel. Revenues of $3.50 billion were also above the Zacks Consensus Estimate of $3.46. Additionally, the company provided an upbeat guidance for the fourth quarter. Earnings per share are expected in the range of 64–74 cents, well above the Zacks Consensus Estimate of 62 cents at the time of issuing the guidance while revenues will likely be between $3.13 billion and $3.39 billion. The stock is up 7.1% post earnings announcement on October 20 after the bell.

also surprised the market in its latest earnings release on October 21 after the bell. Earnings per share came in at 76 cents on $2.26 billion revenues, strongly outpacing our earnings estimate of 66 cents and revenue estimate of $2.17 billion. The company guided higher with revenue of $2–$2.15 billion for the fourth quarter of 2014 while the current Zacks Consensus Estimate is currently pegged at $2.086 billion. BRCM shares rose 6.3% post earnings to date.

The impressive performances and bright industry outlook put semiconductor ETFs in focus for the next few days. Investors seeking to ride out the surging space in a diversified way could consider the following ETFs.

This ETF follows the PHLX Semiconductor Sector Index and offers exposure to 16 domestic firms. It is highly concentrated on the top three firms with heavy allocations to TXN, MU and Applied Materials (

) that make up for a combined 22% share. Broadcom takes the fourth position in the basket with 4.25% allocation. Further, about two-thirds of the portfolio is dominated by large cap stocks while mid caps take the remainder with just 4% going to small caps.

The fund has amassed $499 million in its asset base and trades in average volume of roughly 219,000 shares a day. The product charges 47 bps in fees a year from investors and has gained about 11.8% over the past 10 days. The fund has a Zacks Rank of 3 or ‘Hold' rating with Medium risk outlook (read:

).

This fund provides exposure to 26 securities by tracking the Market Vectors US Listed Semiconductor 25 Index. Of these, two firms – Intel and Taiwan Semiconductor Manufacturing (

) – dominate the fund's return with a combined 34.7% of total assets. MU, TXN and BRCM are among the fund's top six holdings making up for 5.41%, 5.04% and 4.54%, respectively.

From a market cap look, the product focuses on large cap stocks, as these account for three-fourth of the portfolio. The product has managed assets worth $306.5 million and charges 35 bps in annual fees and expenses. It is heavily traded with a volume of more than 2.2 million shares per day and has gained about 10% in the past 10 days. SMH has a Zacks ETF Rank of 2 or ‘Buy' rating with Medium risk outlook.

This fund tracks the S&P Semiconductor Select Industry Index, holding 49 stocks in its portfolio. It is widely spread across each security as none of these allocates more than 2.7% of the assets. The product has a definite tilt toward small cap stocks at 61%, followed by 26% in mid caps and 13% in large caps (see:

).

The fund is less popular and illiquid with AUM of $129 million and average daily volume of roughly 114,000 shares. It charges 35 bps in fees per year and has added nearly 10.7% over the past 10 trading sessions. The fund has a Zacks ETF Rank of 3 or ‘Hold' rating with a High risk outlook.

This fund tracks the Dynamic Semiconductor Intellidex Index, holding 30 securities in the basket with none holding more than 5.7% of assets. The in-focus four firms are among the top 10 holdings. The ETF is widely diversified across various market spectrums as about 44% goes to small caps, 31% to large caps and the rest to mid caps.

The product, with AUM of $28.2 million is often overlooked by investors and hence sees a lower average daily volume of 19,000 shares. Expense ratio came in at 0.63%. PSI is up nearly 11.6% in the same time period and has a Zacks ETF Rank of 3 or ‘Hold' rating with a High risk outlook (read:

).

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