Muted 2018 Expectations for Semiconductor ETFs

The technology sector is the best-performing group in the S&P 500 this year and semiconductor stocks are a big reason why. The VanEck Vectors Semiconductor ETF (NYSEArca: SMH) and the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX) are up 38.4% and 40.4%, respectively, year-to-date.

Some market observers believe investors should not bet on comparable returns for semiconductor stocks and the related exchange traded funds in 2018.

“Despite a recent sell-off, the Philadelphia Semiconductor Index is up 92 percent since the beginning of 2016 and is poised to beat all 11 S&P sectors for a second consecutive year, fueled by earnings growth and an unprecedented period of consolidation,” reports Bloomberg. “While the streak hasn’t quite turned analysts bearish, some are advising investors to be selective with their picks and vigilant for signs of slowing demand and rising inventory levels.”

Semiconductor ETFs have recently been durable performers as semiconductor stocks are rebounding to steady the broader technology sector, but that does not mean the gains are over for this suddenly hot group. However, valuations are rising for chip stocks.

Investors could be paying up for future catalysts for semiconductor and broader technology names. If there is a silver lining for the rising valuations on chip stocks it is that some industry observers believe the group’s valuations should not be measured in the traditional sense because of the evolution of the semiconductor business.