Semiconductor ETFs to Capture the Rebound in Consumer Electronics Demand

Investors can look to semiconductor sector-specific exchange traded funds as chipmakers struggle to meet a global shortage of chips for electronic devices for laptops, smartphones, TVs, and more.

Industry executives and analysts attributed an ongoing global shortage in semiconductors to bulk-buying by U.S. sanctions-hit Chinese technology giant Huawei Technologies, a fire at a chip plant in Japan, coronavirus lockdowns in Southeast Asia, a strike in France, and a rebound in consumer demand, Reuters reports.

More importantly, there has been under-investment in 8-inch chip manufacturing plants among Asian firms, so many have struggled to raise production to meet the accelerating demand for 5G phones, laptops, and cars that picked up faster than expected as the world economy shakes off the Covid-19 pandemic.

“For the whole electronics industry, we’ve been experiencing a shortage of components,” Donny Zhang, CEO of Shenzhen-based sourcing company Sand and Wave, told Reuters. “We were originally planning to complete production in one month, but now it looks like we’ll need to do it in two.”

Consumer demand in China, especially for cars, has rebounded faster than expected from the coronavirus crisis. Meanwhile, orders for electronics such as laptops and mobile phones in regions still struggling with pandemic restrictions, like Europe and the United States, have also increased.

“Since (these products) all compete for the same fab (fabrication plant) resources the shortage is across all of these sectors and others as well. These are just the most apparent right now,” Kevin Anderson, a senior analyst at Omdia, told Reuters.

“Business came back much faster than we expected,” NXP CEO Kurt Sievers told German business daily Handelsblatt. “Many customers ordered too late. As a result, we are not able to keep up in some areas.”

As the recovery in semiconductor demand for a wide range of electronics and automobiles gradually improves, ETF investors can turn to sector-specific ETF plays to capture the growth opportunity, including the SPDR S&P Semiconductor ETF (NYSEArca: XSD), iShares PHLX Semiconductor ETF (NasdaqGM: SOXX), and VanEck Vectors Semiconductor ETF (NYSEArca: SMH).

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