Market Overview

Not All Chip ETFs Are Bleeding Assets

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Not All Chip ETFs Are Bleeding Assets

Last week, investors scampered out of the VanEck Vectors Semiconductor ETF (NYSE: SMH).

SMH, one of the largest semiconductor exchange traded fund (ETFs), suffered $574 million in outflows, seeing its assets under management decline 40 percent in the process, according to Bloomberg data.

What Happened

“Chip stocks are going through a extremely rough patch, in part due to the trade dispute between the U.S. and China,” reports Bloomberg. “The Philadelphia Semiconductor Index has fallen for four straight weeks, the longest streak since May 2016, and is down almost 10 percent in October, putting it on track for its worst month since May 2012.”

SMH, which tracks the MVIS US Listed Semiconductor 25 Index, is off by nearly 11 percent this month.

Why It's Important

The outflows from SMH came ahead of a busy week for semiconductor earnings. This week, major chip makers, including Advanced Micro Devices Inc. (NASDAQ: AMD) and Intel Corp. (NASDAQ: INTC), report earnings. Overall, more than a third of the members of the PHLX Semiconductor Index report quarterly results this week.

While SMH is bleeding assets, some traders are displaying a taste for leveraged semiconductor ETFs, including the Direxion Daily Semiconductor Bull 3X Shares (NYSE: SOXL). SOXL attempts to deliver triple the daily returns of the PHLX Semiconductor Index.

Over the past month, SOXL is averaging daily inflows of $3.79 million, good for one of the best totals among Direxion's leveraged bullish ETFs, according to issuer data.

Analysts have recently been bearish on chip stocks.

“Morgan Stanley downgraded the sector in August, and Goldman Sachs Group Inc. warned that supply and pricing issues hurting memory chipmakers could worsen in 2019,” according to Bloomberg.

What's Next

This week's deluge of semiconductor earnings represents a clear, potentially dangerous test for SOXL. SOXL's bearish counterpart, the Direxion Daily Semiconductor Bear 3X Shares (NYSE: SOXS), could benefit if chip stocks falter further, but SOXS is averaging daily outflows of $1.12 million over the past month.

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