Despite Challenges, Long-Term Prospects Good for Semiconductor ETF

The semiconductor industry has had its fair share of obstacles over the past few years, but long-term prospects point to expansive growth, according to a McKinsey study.

The onset of the COVID-19 pandemic in particular brought forth supply challenges as the world relied more heavily on computers. In turn, this pushed a demand for computer processing power and subsequently, semiconductors.

“Supply shortages led to bottlenecks in the production of everything from cars to computers and highlighted how tiny chips are critical to the smooth functioning of the global economy,” the study pointed out. “In many ways, our world is ‘built’ on semiconductors.”

Even though the world has changed since the start of the pandemic, this doesn’t mean the demand for semiconductors will fizzle. McKinsey is expecting the industry to grow exponentially in the next decade.

“As the impact of digital on lives and businesses has accelerated, semiconductor markets have boomed, with sales growing by more than 20 percent to about $600 billion in 2021,” the study said. “McKinsey analysis based on a range of macroeconomic assumptions suggests the industry’s aggregate annual growth could average from 6 to 8 percent a year up to 2030.”

2 Semiconductor ETF Options From Invesco

Invesco has a pair of options to consider from a long-term growth perspective: the Invesco PHLX Semiconductor ETF (SOXQ) and the Invesco Dynamic Semiconductors ETF (PSI). As the world continuously relies on computers in various capacities, both funds are prime growth options in the semiconductor industry.

“With chip demand set to rise over the coming decade, semiconductor manufacturing and design companies would benefit now from a deep analysis of where the market is headed and what will drive demand over the long term,” McKinsey noted.

For broad exposure to the top semiconductor companies, SOXQ tracks the PHLX Semiconductor Sector Index, which measures the performance of the 30 largest U.S.-listed securities of companies engaged in the semiconductor business. Semiconductors include products such as memory chips, microprocessors, integrated circuits, and related equipment that serve a wide variety of purposes in various types of electronics, including in personal household products, automobiles, and computers, among others.

For a factor-based screener, PSI tracks the Dynamic Semiconductor Intellidex℠ Index, which is designed to provide capital appreciation by thoroughly evaluating companies based on a variety of investment merit criteria, including: price momentum, earnings momentum, quality, management action, and value. The index is comprised of common stocks of 30 U.S. semiconductors companies.

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