Nasdaq's SOXX ETF and the Epic Era of the Semiconductor

Semiconductor assets like the iShares PHLX Semiconductor ETF (NasdaqGM: SOXX) are benefitting from supply shortages.

Those shortfalls are, in large part, attributable to a rapidly evolving technology landscape, one that includes technologies like data centers, electric vehicles, and much more. That bodes well for SOXX’s long-term trajectory.

SOXX seeks to track the investment results of the PHLX Semiconductor Sector Index (SOX), which is composed of U.S. equities in the semiconductor sector. The fund generally invests at least 90% of its assets in securities of the underlying index and in depositary receipts representing securities of the underlying index. The underlying index measures the performance of U.S.-traded securities of companies engaged in the semiconductor business.

Past performance isn’t guaranteed to repeat, but it’s worth noting that chip stocks and the PHLX Semiconductor Index have legacies of out-performance.

“During the 2010s, SOX returned 513% on a total return basis, besting even the Nasdaq-100 Index (NDX) which soared 426%. In 2020, it appreciated by an incremental 54%, slightly ahead of NDX’s total return of 49%,” writes Mark Marex, Nasdaq senior product development specialist.

SOXX 1 Year Total Return

Plenty of Positive Sparks

SOXX has other near-term catalysts. Consumer demand in China, especially for cars, has rebounded faster than expected from the coronavirus crisis. Meanwhile, orders for electronics such as laptops and mobile phones in regions still struggling with pandemic restrictions, like Europe and the United States, have also increased.

The ETF and its underlying index SOX are off to strong starts in 2021, indicating this could be another year of impressive returns.

“SOX has outperformed both the Nasdaq-100 (NDX) and the S&P500 (SPX) in the first three months of 2021, with a gain of 11.8% (price-return basis). Even the Nasdaq-100 Technology Sector Index (NDXT) has not kept pace with SOX, which is still in the midst of the longest-running and sharpest streak of outperformance in its history,” adds Marex.

SOXX is soaring as the need for chips outweighs supply in the current environment. As social distancing measures have forced more reliance on technology, the semiconductors needed to power devices have driven up demand. Cloud computing and the internet of things (IoT) are among the long-term drivers of chip demand.

“As more devices connect to the cloud, there will continue to be a need for ever smaller and more powerful computer chips and processors. Continuous advances in mobile phones, gaming and media entertainment, cryptocurrency, and new machinery such as drones, robots, and autonomous vehicles will drive further innovation in this competitive field,” concludes Marex.

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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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