Go Long on the Global Semiconductor Shortage with 'SOXL'

A heavier reliance on technology is putting processing power and semiconductors at the forefront of the economy. ETF traders can go long on chips with leverage with the Direxion Daily Semiconductor Bull 3X ETF (SOXL).

Automaker GM is witnessing firsthand how the high demand for chips is affecting supply.

“The global semiconductor chip shortage led General Motors Co on Wednesday to extend production cuts at three North American plants and add a fourth to the list of factories hit, and Stellantis to warn the pain could linger far into the year,” a Reuters article said.

SOXL seeks daily investment results equal to 300% of the daily performance of the PHLX Semiconductor Sector Index. The fund, under normal circumstances, invests at least 80% of its net assets in financial instruments, such as swap agreements, and securities of the index, ETFs that track the index and other financial instruments that provide daily leveraged exposure to the index or ETFs that track the index.

The index measures the performance of domestic companies engaged in the design, distribution, manufacture, and sale of semiconductors.

“This ETF offers 3x daily long leverage to the PHLX Semiconductor Index, making it a powerful tool for investors with a bullish short-term outlook for semiconductor equities,” ETF Database analysis noted. “Investors should note that SOXL’s leverage resets on a daily basis, which results in compounding of returns when held for multiple periods. SOXL can be a powerful tool for sophisticated investors, but should be avoided by those with a low risk tolerance or a buy-and-hold strategy.”

Momentum is obviously on the side of semiconductors, with SOXL up almost 94% despite the recent sell-offs due to rising yields and inflation fears. If fundamental factors like a chip shortage, hold up, SOXL could continue its uptrend through the rest of 2021.

SOXL Chart

How Is GM Coping with the Chip Shortage?

In the meantime, GM is doing what it can to counter the current chip shortage. According to the Reuters article, “GM did not disclose the impact on volumes or say which supplier or parts were affected by the chip shortage, but the U.S. automaker said it intends to recover as much of the lost output as possible.”

“GM continues to leverage every available semiconductor to build and ship our most popular and in-demand products, including full-size trucks and SUVs,” GM spokesman David Barnas said. “We contemplated this downtime when we discussed our outlook for 2021.”

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