Despite the fact that markets had a generally more optimistic tone over the past week, semiconductor stocks have been punished, falling more than 1% even as the broader market rose.
Investors who are bearish on semis and looking to use ETFs to play the semiconductor sector might consider the
Direxion Daily Semiconductor Bull and Bear 3X Shares (SOXS), which allows leveraged and inverse investment in an ETF that aims to beat the performance of the PHLX Semiconductor Sector Index.
One analyst believes that with there is likely to be broadening volatility in store for the markets, similar to the price action that investors experienced last year. Rather than invest in the broad market for semiconductors, he exhorts investors instead look into individual equities that compose a larger ETF like SMH, the VanEck Vectors Semiconductor ETF.
“Well I think from here we’re going to be chopping around a lot, because the recent volatility that’s been injected into the SMH really feels like we’re back in the beginning of 2018. And if you remember, this ETF whipped around 15, 20% nearly very single week. Then we had that major overreaction to the downside in December, followed by a major overreaction to the upside at the beginning of this year. So I think investing in the SMH is very difficult here. I think volatility is coming back. I prefer to look at individual names within it,” MKM Partners chief market technician JC O’Hara explained on CNBC.
SMH seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS US Listed Semiconductor 25 Index (MVSMHTR), which is intended to track the overall performance of companies involved in semiconductor production and equipment.
Like, O’Hara, Mark Tepper, president and CEO of Strategic Wealth Partners, believes that semis could continue to be crushed and admonishes investors to be more selective in choosing stocks.
“This is where you look for companies that fit secular themes that you want to be a part of, themes you want to play, so you find them, you wait for them to fall into your lap at a price that makes sense,” Tepper said on CNBC’s “Trading Nation ” on Friday. “Let’s look at
Nvidia as an example. ”
Nvidia has beaten down in recent months, faring much worse than the broader semiconductor industry as a whole; the stock has tumbled 13% in the past three months, while the
SMH semiconductor ETF has fallen just 1% in contrast. Nevertheless, Nvidia has begun to outperform the SMH ETF this month.
“With Nvidia, you’re getting best-of-breed exposure to all the highest growth end markets that we want to play — autonomous vehicles, AI, data center, gaming,” said Tepper. “It’s trading below $145 right now. And it looks really nice in the $135 to $140 range. You might even be able to get it at around $125, and it’s just a no-brainer at that level.”
