The technology sector has shown nice strength over the past few months exclusively on impressive performances of semiconductor stocks. The Internet and social media meltdown early in the year had compelled investors to shift their focus to value-centric traditional areas like semiconductors, pushing the stocks higher.
Then, encouraging industry fundamentals and strong corporate earnings from some semiconductors industry primes such as Intel INTC, Micron Technology MU, Broadcom BRCM and Texas Instruments TXN fueled optimism in the broad space. The bullish trend is likely to continue through the rest of the year on the strengthening U.S. economy and rising demand for complex computer chips.
Capacity utilization, more advanced technologies and new gadgets will continue to fuel demand for the chips and other semiconductor products. In particular, Apple's AAPL new products – iPhone 6 and iWatch – will definitely drive sales of electronic devices in the months ahead as consumer spending generally rises in the second half of the year from back-to-school to the holiday shopping season (read: 3 ETFs for Last-Minute Back-to-School Shopping).
Further, the PC market is stabilizing and will likely see accelerated growth in the remaining part of the year thanks to replacement of older devices and upgrades from Windows XP.
With that being said, the global semiconductor industry hit a monthly record sales of $28.1 billion in July, up 9.9% year over year, and remains on pace for the highest-ever sales this year. As per the World Semiconductor Trade Statistics (WSTS), global industry sales would grow 6.5% this year and then slow down with growth of 3.3% in 2015 and 4.3% in 2016. Most of this growth will come from smartphones, tablets and automotive while microprocessors will see a soft decline.
Further, the upside to this industry is confirmed by the Zacks Industry Rank as 10 out of 11 semiconductor industries actually have a solid Rank at the time of writing. Radiofrequency, communications, memory, general, and fab foundries have a Zacks Rank in the top 7% while the other five segments – prologic devices, power, graphical, analog & mixed signal, and electric computer – have ranks in the top 42%. This suggests strong future growth and smooth trading in this corner of the technology market over the coming months.
Given the optimistic outlook, a good way to seek entry into the semiconductor space is by tilting toward companies in this segment. While there are a number of ways to invest in this corner of the market, a look at the top ranked ETF could be an excellent play. One way to find a top ranked ETF in the semiconductor space is by using the Zacks ETF Rank system (see: all the Technology ETFs here).
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box or asset class. Our proprietary methodology also takes into account the risk preferences of investors.
The aim of our model is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, the Zacks ETF Rank reflects the expected return of an ETF relative to other products with a similar level of risk.
Using this strategy, we have found one ETF – PowerShares Dynamic Semiconductors Fund (PSI) – that has a Zacks ETF Rank of 1 or ‘Strong Buy' rating with a ‘High' risk outlook (see: all the Top Ranked ETFs).
PSI in Focus
This ETF provides exposure to the semiconductor segment of the broader U.S. technology sector by tracking the Dynamic Semiconductor Intellidex Index. This benchmark selects stocks on a variety of investment criteria: price momentum, earnings momentum, quality, management action, and value.
In total, the fund holds a small basket of 30 securities and charges a bit higher fee of 63 bps per year from investors. The product is bit concentrated on the top eight firms with nearly 5% share each. Broadcom, KLA-Tencor KLAC and Intel occupy the top three positions. Other firms do not hold more than 3% of total assets in the basket (read: A Comprehensive Guide to Semiconductor Industry ETFs).
Additionally, the fund is widely spread out across various market caps with 47% going to small caps, 30% to large caps and the rest to mid caps. From a style look, it has a nice mix of blend, value and growth securities. Superior weightings indicate huge diversification benefits and makes it a solid play in the space.
Moreover, the performance of the fund has been quite impressive, delivering a robust return of about 87.8% over the trailing three-year period, 36.3% over the one-year and 24.5% year-to-date. In fact, PSI is crushing the broad technology fund XLK and U.S. market fund SPY by wide margins this year (read: Top Performing Sector ETFs of August).
However, the fund is often overlooked by investors, as it has accumulated only $25.8 million in its asset base and trades in small volume of roughly 15,000 shares per day. This suggests that bid/ask spreads are relatively wide and that total costs may be higher than the expense ratio.
Bottom Line
With strong demand for semiconductor products and a revival in the economy, the ETF will continue its winning streak for the rest of this year. As a result, investors could make huge profits by investing in this corner of the broad market with this top ranked ETF.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
PWRSH-DYN SEMI PSI: ETF Research Reports
INTEL CORP INTC: Free Stock Analysis Report
MICRON TECH MU: Free Stock Analysis Report
BROADCOM CORP-A BRCM: Free Stock Analysis Report
TEXAS INSTRS TXN: Free Stock Analysis Report
APPLE INC AAPL: Free Stock Analysis Report
SPDR-TECH SELS XLK: ETF Research Reports
SPDR-SP 500 TR SPY: ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research
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Capacity utilization, more advanced technologies and new gadgets will continue to fuel demand for the chips and other semiconductor products. In particular, Apple's AAPL new products – iPhone 6 and iWatch – will definitely drive sales of electronic devices in the months ahead as consumer spending generally rises in the second half of the year from back-to-school to the holiday shopping season (read: 3 ETFs for Last-Minute Back-to-School Shopping).
Further, the PC market is stabilizing and will likely see accelerated growth in the remaining part of the year thanks to replacement of older devices and upgrades from Windows XP.
With that being said, the global semiconductor industry hit a monthly record sales of $28.1 billion in July, up 9.9% year over year, and remains on pace for the highest-ever sales this year. As per the World Semiconductor Trade Statistics (WSTS), global industry sales would grow 6.5% this year and then slow down with growth of 3.3% in 2015 and 4.3% in 2016. Most of this growth will come from smartphones, tablets and automotive while microprocessors will see a soft decline.
Further, the upside to this industry is confirmed by the Zacks Industry Rank as 10 out of 11 semiconductor industries actually have a solid Rank at the time of writing. Radiofrequency, communications, memory, general, and fab foundries have a Zacks Rank in the top 7% while the other five segments – prologic devices, power, graphical, analog & mixed signal, and electric computer – have ranks in the top 42%. This suggests strong future growth and smooth trading in this corner of the technology market over the coming months.
Given the optimistic outlook, a good way to seek entry into the semiconductor space is by tilting toward companies in this segment. While there are a number of ways to invest in this corner of the market, a look at the top ranked ETF could be an excellent play. One way to find a top ranked ETF in the semiconductor space is by using the Zacks ETF Rank system (see: all the Technology ETFs here).
About the Zacks ETF Rank
The Zacks ETF Rank provides a recommendation for the ETF in the context of our outlook for the underlying industry, sector, style box or asset class. Our proprietary methodology also takes into account the risk preferences of investors.
The aim of our model is to select the best ETFs within each risk category. We assign each ETF one of five ranks within each risk bucket. Thus, the Zacks ETF Rank reflects the expected return of an ETF relative to other products with a similar level of risk.
Using this strategy, we have found one ETF – PowerShares Dynamic Semiconductors Fund (PSI) – that has a Zacks ETF Rank of 1 or ‘Strong Buy' rating with a ‘High' risk outlook (see: all the Top Ranked ETFs).
PSI in Focus
This ETF provides exposure to the semiconductor segment of the broader U.S. technology sector by tracking the Dynamic Semiconductor Intellidex Index. This benchmark selects stocks on a variety of investment criteria: price momentum, earnings momentum, quality, management action, and value.
In total, the fund holds a small basket of 30 securities and charges a bit higher fee of 63 bps per year from investors. The product is bit concentrated on the top eight firms with nearly 5% share each. Broadcom, KLA-Tencor KLAC and Intel occupy the top three positions. Other firms do not hold more than 3% of total assets in the basket (read: A Comprehensive Guide to Semiconductor Industry ETFs).
Additionally, the fund is widely spread out across various market caps with 47% going to small caps, 30% to large caps and the rest to mid caps. From a style look, it has a nice mix of blend, value and growth securities. Superior weightings indicate huge diversification benefits and makes it a solid play in the space.
Moreover, the performance of the fund has been quite impressive, delivering a robust return of about 87.8% over the trailing three-year period, 36.3% over the one-year and 24.5% year-to-date. In fact, PSI is crushing the broad technology fund XLK and U.S. market fund SPY by wide margins this year (read: Top Performing Sector ETFs of August).
However, the fund is often overlooked by investors, as it has accumulated only $25.8 million in its asset base and trades in small volume of roughly 15,000 shares per day. This suggests that bid/ask spreads are relatively wide and that total costs may be higher than the expense ratio.
Bottom Line
With strong demand for semiconductor products and a revival in the economy, the ETF will continue its winning streak for the rest of this year. As a result, investors could make huge profits by investing in this corner of the broad market with this top ranked ETF.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
PWRSH-DYN SEMI PSI: ETF Research Reports
INTEL CORP INTC: Free Stock Analysis Report
MICRON TECH MU: Free Stock Analysis Report
BROADCOM CORP-A BRCM: Free Stock Analysis Report
TEXAS INSTRS TXN: Free Stock Analysis Report
APPLE INC AAPL: Free Stock Analysis Report
SPDR-TECH SELS XLK: ETF Research Reports
SPDR-SP 500 TR SPY: ETF Research Reports
To read this article on Zacks.com click here.
Zacks Investment Research
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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