Up nearly 32% this year, 2014’s top-performing non-leveraged technology exchange traded fund flies under the radar.
More surprisingly, the PowerShares Dynamic Semiconductors Portfolio (NYSEArca: PSI), as its name implies, has delivered peer-beating performance this year without the benefit of high-flying, big name tech titans such as Apple (NasdaqGS: AAPL) and Microsoft (NasdaqGS: MSFT). PSI has, however, benefited from being a dedicated play on semiconductors, this year’s top-performing tech sub-sector.
In a year in which semiconductor stocks have been tech sector leaders, PSI stands out because its 30 holdings are well spread across the three market capitalization spectrums. In fact, PSI, unlike some of its rival semiconductor ETFs, is not heavily dependent on the likes of Intel (NasdaqGS: INTC), Texas Instruments (NasdaqGS: TXN) and Qualcomm (NasdaqGS: QCOM) to drive its returns. [A Small but Powerful Chip ETF]
In fact, it is to PSI’s credit that it has been able to surge almost 32% with just a 4.8% weight to Intel. Shares of the largest semiconductor maker are up 37.4% this year. In a testament to PSI’s strength and that of the broader semiconductor group, each of the ETF’s top-10 holdings are in the green this year, nine with double-digit returns, two with gains of more than 50% and two have more than doubled.
Another element to PSI’s advantage, and one that explains the ETF’s lack of dependence on the biggest chip names, is the fund’s smart beta status. PSI tracks the Dynamic Semiconductor Intellidex Index, which evaluates companies for inclusion based on “price momentum, earnings momentum, quality, management action, and value, according to PowerShares.
With 2014 nearly complete, the question is can PSI come close to duplicating this year’s performance next year? The answer is yes, particularly if the ETF’s holdings can deliver upside earnings and revenue surprises. Expectations are in place for another strong year for the semiconductor group, but it will be up to the individual companies, including PSI holdings, to show those expectations are not fully reflected in current share prices.
“The worldwide semiconductor capital equipment market is forecast to increase 20.8 percent this year to $38.44 billion, compared with 2013’s $31.82 billion, and another 10.8 percent in 2015 to $42.6 billion,” Jeff Dorsch reports for Solid State Technology, citing Semiconductor Equipment and Materials International. Next year is expected to be the biggest year for semiconductor spending since 2000, according to Semiconductor Equipment and Materials International.
PowerShares Dynamic Semiconductors Portfolio
Tom Lydon’s clients own shares of Apple.