The consolidating chipmaker industry and rise of mergers and acquisitions have helped semiconductor sector-related exchange traded gain momentum.
Over the past 12 months, semiconductor industry’s M&A activity totaled $78 billion, reports Josh Lipton for CNBC.
The equally weighted SPDR S&P Semiconductor ETF (NYSEArca: XSD) has been a notable beneficiary of the increased M&A activity as the fund tilts toward smaller companies – due to its weighting methodology, XSD has a 12.8% tilt toward micro-caps, 46.3% to small-caps, 25.4% to mid-caps, 11.2% to large-caps and 4.4% to mega-caps.
XSD increased 5.8% year-to-date and jumped 33.4% over the past year. In contrast, the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX), which tracks the cap-weighted PHLX SOX Semiconductor Sector Index, dipped 4.2% year-to-date and rose 17.4% over the past year. [Semiconductor ETFs Starting To Look Electric]
More recently, shares of Analog Devices (NasdaqGS: ADI) and Maxim Integrated Products (NasdaqGS: MXIM) are in merger talks after Fairchild Semiconductor International (NasdaqGS: FCS) and SanDisk (NasdaqGS: SNDK) hired banks to explore possible sale options.
XSD includes 2.3% ADI, 2.5% MXIM and 2.6% FCS.
Analysts argue that the time is ripe for increased M&A activity as the growing semiconductor industry matures.
The semiconductor industry, though, faces some headwinds. Research firm Gartner anticipates that worldwide shipments of personal computers, tablets and smartphones will rise just 1.5 percent this year, which could cause chip sales to fall 1% in 2015. Additionally, Mark Hung, a research vice president at Gartner, also pointed out that manufacturing costs remain high for chipmakers.