On this episode of the “ETF of the Week” podcast, VettaFi’s Head of Research, Todd Rosenbluth, discussed the Direxion Daily Semiconductor Bull 3x Shares (SOXL) with Chuck Jaffe of Money Life. The pair discussed several topics related to the fund to give investors a deeper understanding of the ETF.
Chuck Jaffe: One fund, on point for today. The expert to talk about it. This is the ETF of the Week!
Welcome to the ETF of the Week, where we get the latest take from Todd Rosenbluth, the head of research at VettaFi. And if you go to VettaFi.com, you’ll find all the tools you need to be a savvier, smarter ETF investor. And to get more details on the new, newsworthy, trending, and timely ETFs that we discuss here.
Todd Rosenbluth, it’s great to chat with you again!
Todd Rosenbluth: It’s great to be back, Chuck!
Chuck Jaffe: Your ETF of the Week is…
Todd Rosenbluth: The Direxion Daily Semiconductor Bull 3x Shares ETF, SOXL.
Chuck Jaffe: SOXL! The Direxion Daily Semiconductor Bull 3x Shares. Wow, Todd. This is not the kind of thing I normally expect to be ETF of the Week, because 3x means we’re playing leverage, we’re sector fund, and we’re daily. So there’s got to be something that’s a bee in your bonnet on this one. What’s up?
Todd Rosenbluth: Well, it’s spooky season, right? People are going to be listening to this and watching this as we’re heading into Halloween season. I figured I’d come up with one of the ETFs that people think is quite risky and scary. And maybe we’ll spend some time talking about what it is and what it isn’t.
So, SOXL is actually one of the oldest of those leveraged ETFs. It launched in 2010, so we’ve got 15 years of history behind it. We’ve seen single-stock leveraged ETFs increase in number. We actually saw a filing in recent weeks of 5x leverage that got people curious, scared, a bunch of those adjectives.
Let’s talk about what SOXL is and what it isn’t.
Chuck Jaffe: Well, what it is, is volatile because, well, in 2023, the fund was up about 225%. In 2021, it was up 118%. In 2019, it was up over 230%. And I know that in the last ten years, it’s had like six years where it’s been up more than 100%. And this year it’s up more than 55%.
But it also had an 85% loss in 2022. It was also down about 12.5% last year when the market was strongly positive. So, what is it? Or maybe, what should it be used for?
Todd Rosenbluth: So, first of all, the fact that you had all those numbers off the top of your head without looking at any notes is impressive! I’ll give you credit for that. The word “daily” in the ETF, I think, is perhaps, well… There’s a lot of words in the name of the ETF, but it’s particularly important. It’s daily in terms of the leverage standpoint. And it’s also daily in the way that investors should consider it.
So, you cited a lot of annual numbers. And they’re relevant, because that’s how we look at ETFs typically. But I don’t think many people, and in fact I don’t think people should be looking at this leveraged ETF, or any leveraged ETF, for that long a time horizon. To me, the use case for SOXL is: We are in earnings season right now as we are recording this, as people will be listening and watching to this. We are in earnings season.
Individual stocks within the semiconductor space and the semiconductor space at large [are]going to move. Are you bullish on that, heading into earnings, for a day or two? This is a trade that makes sense perhaps for you to put on, bearing in mind that you could be losing.
So, the fund has done well this year, SOXL, from a performance standpoint in years past. But it was just a couple of weeks ago, we had fears about the U.S.-China relationship. And SOXL was down close to 20% on that given day, on the day. So these are risky if you get the call wrong. If you get the call right, they’re very rewarding. And so, it’s important to both think of it from understanding the risk, but also understanding that time horizon and keeping it tactical.
Chuck Jaffe: A fund like this is not only not for the faint of heart, it is for somebody who is ready to watch it and be trading in and out. You can’t take a day off. You can’t buy this fund and not be making your decision on a day-to-day basis. Correct?
Todd Rosenbluth: Correct. Or you do so with bearing in mind that you could be losing any of the profits you might have gained or profits you hadn’t yet had a chance to be able to gain. So it’s okay to not… Well, it’s okay to not watch this on a daily basis, as long as you’re prepared to stomach the losses. And I think it’s important, if you are investing, and many of the listeners are, we’ve come talking about things from a strategic standpoint.
I think the last one or last two we talked about were more strategic in nature, how you could have an ETF be part of your portfolio for the long haul. SOXL, and its sister fund, which is SOXS, which is the bearish version where you’re betting against the stocks and you actually hope that they go down in value, are tactical, short-term trades.
Chuck Jaffe: For somebody who is out there who has long-term trades in semiconductors, or who has long-term trades in the S&P 500, which has significant technology and semiconductor exposure, the answer is normally we’re saying you factor that stuff in, but this time that’s really irrelevant.
You want to have that long-term stuff. You’re not really worried about the weighting because this is in that tactical, short-term, in-and-out of the market kind of piece of the portfolio. So, the bigger lesson here is if you’re going to be playing with this, you know, don’t muddy the waters. Keep this as a separate, completely separate part of your portfolio, right?
Todd Rosenbluth: Yeah. So this is… This is putting some gravy on top. Or my friend Eric Balchunas likes to use the phrase “hot sauce on top of what you’re putting into your portfolio.” So you likely own semiconductor exposure through the S&P 500. Nvidia is the largest stock, and Nvidia is joined by AMD and Intel and Qualcomm. These are other semiconductor stocks that you’ll have within the S&P 500. If you own the QQQs, you are exposed to semiconductor stocks.
If you’re buying SOXL for a short-term purpose, it’s because you believe now is a great time — now being the day you’re listening to this, or the day after, or whenever you put the trade on — for that short-term time horizon. And you’re prepared for that snowball effect to go in favor as opposed to working against you.
Chuck Jaffe: This is part of a suite of funds. You could have picked other industries, et cetera. For somebody who is making this kind of play, if they get comfortable doing it, do they stick in one or do they kind of go, no. If I’ve got a sense that today it’s semiconductors and tomorrow it’s industrial companies or whatever it might be, yeah, you’re dancing around, because that’s what these are designed to do.
Todd Rosenbluth: Right. So the approach to take a leveraged bet on a sector or industry, or the broader marketplace, Direxion has a suite of those products. They’re not the only one. We’ve also seen individual stocks that are leveraged. You lose the benefits of diversification. And that… I guess you can be much more precise, and choose an individual company and thus the company will benefit.
But I think you get the benefits, some benefits of diversification, by focusing on semiconductors. I would note that Direxion launched recently a top-five bull ETF for semiconductors, a daily semiconductor top five that gets a bit more or that gets more concentrated, whereas SOXL is going to hold more than five companies, but all of the companies that are in the broader semiconductor index.
It’s really, I guess, a choice. But the narrower your focus is, the greater the risk that you’re taking on, the potential greater reward. But I want to make sure that we focus on the risk, even though I’m highlighting this ETF SOXL, as an ETF of the Week. This is a risky investment. This should be a slice of your portfolio. And it should be done with a short-term time horizon in mind. And you should be prepared that you could lose money on day one, more than perhaps you would expect.
Chuck Jaffe: Yeah, it is a pick that can do some spooky things, but it could also do some great things! It’s SOXL, The Direxion Daily Semiconductor Bull 3X Fund, the ETF of the Week, an unusual ETF of the Week pick from Todd Rosenbluth of VettaFi. Todd, great stuff as always. See you next week!
Todd Rosenbluth: Happy Halloween, Chuck!
Chuck Jaffe: The ETF of the Week is a joint production of VettaFi and Money Life with Chuck Jaffe. And yeah, I’m Chuck Jaffe. I’d love it if you check out my hour-long weekday podcast. If you go to MoneyLifeShow.com, but you can search for it wherever you find your favorite podcasts.
Now, if you’re searching for information on your favorite ETFs or maybe your next favorite ETF, look no further than VettaFi.com, where they’ve got a full suite of tools that’s going to help you get the information you’re looking for. They’re on X at @Vetta_Fi. Todd Rosenbluth, their head of research, my guest here, he’s on X too. He’s at @ToddRosenbluth.
The ETF of the Week is here for you every Thursday. Make sure you don’t miss an episode by following along on your favorite podcast app. And we will have another ETF for you to consider next week. Until then, happy investing, everybody!
Note: This article was created in part through assistance from AI tools. The content has been thoroughly reviewed and edited by the author.
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