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. Experienced tactical traders should only apply given the fund’s triple leverage capabilities.
“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.”
From a performance standpoint, it’s easy to see why traders are eager to jump all over SOXL. The fund is up about 450% within the past year, and more strength could be ahead for the semiconductor industry.
Going Long on a Chip Shortage?
Chips are in extremely short supply at present. As the world became more heavily reliant on technology amid the pandemic, more processing power is necessary to fuel heavier use of computing hardware.
Additionally, a demand for chips in automobiles is only helping to add more pressure to the supply constraints. Last month, U.S. president Joe Biden signed an executive order with the intent of addressing a global chip shortage impacting several industries.
“A resurgence in demand for automobiles in Q4 2020 took the industry by surprise,” a Light Counting article noted. “It could have been a pleasant surprise, if the industry had any spare capacity. The problem was that strong demand for semiconductor chips used in PCs, Cloud datacenters, AI clusters, games and crypto-currency mining was already constraining the industry supply chain late last year.”
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