As Chip Shortage Continues, Companies Invest in R&D | ETF Trends

The semiconductor chip shortage has been the story that just keeps on going, as industries continue struggling with serious supply shortages exacerbated by the pandemic and supply chain issues. Chip manufacturers globally are stepping up big and ramping up investments into their research and development facilities to help combat the supply shortage long-term and help meet future demand, reports CNBC.

TSMC, the largest chip maker globally, has announced that it will be building two new facilities as well as working to increase production of its silicon wafers, a cutting-edge technology. Intel has also announced that it will be building two new manufacturing facilities in Arizona, and Samsung released information that it had spent 90% of its annual capital expenditure in 2021 on the semiconductor chip portion of its business.

Last year saw semiconductor businesses globally pouring $146 billion into expanding production capacity as well as research.

“We see capital [expenditure] nearly doubling over the 2021-2025 5 year period vs. 2016-2020 period,” Peter Hanbury, a semiconductor analyst at research firm Bain, told CNBC. “This increase is due to both the increasing complexity of new leading-edge technologies which have more process steps to create a wafer and require more expensive tools, as well as a response to the chip shortage with manufacturers increasing capacity across many technologies.”

Semiconductor chips are necessary for many aspects of modern living, from washing machines to cars, and as societies increasingly rely on technology, the demand is only expected to increase globally over time.

“The human race is addicted to technology,” said Glenn O’Donnell, research director at analyst firm Forrester. “Demand will continue to increase, not wane. In fact, I am skeptical that all this investment is actually enough.”

Investing in Semiconductor and 5G Growth in China

China is one of the world leaders in 5G technology adoption as well as spending, and it is working rapidly to become self-sufficient with semiconductor production, with goals of 70% domestic use by 2025. The KraneShares CICC China 5G and Semiconductor ETF (KFVG) offers exposures to these rapidly expanding industries within China.

KFVG tracks the performance of the CICC China 5G and Semiconductor Leaders Index, an index that contains the top 30 Chinese companies by free-float market cap that are within the following industries: semiconductor manufacturing, manufacturing equipment and services, internet and data services, electronic equipment manufacturing, electronic components, consumer electronics, computer hardware and storage, and communications equipment and commercial electronics.

The top 30 securities have a cap of 10% of the fund, and KFVG minimizes turnover by not adding a company until it is ranked 25 or higher by Fuzzy Logic, doing business as FastINDX (the index provider), and a company will not be removed until it is below 35th.

The top holdings of the fund are Xiaomi at 8.16%, Luxshare Precision Industry at 7.91%, and Foxconn Industries at 5.98%.

KFVG has an expense ratio of 0.64% with fee waivers that end August 1, 2022.

For more news, information, and strategy, visit the China Insights Channel.