The PHLX SOX Semiconductor Sector Index (SOX) – the most widely observed chip equity benchmark – has a new home among U.S.-listed exchange traded funds.
The Invesco PHLX Semiconductor ETF (SOXQ) debuts today, providing access to the 30 components in the PHLX SOX Semiconductor Sector Index that serve as the backbones of an array of disruptive technologies. Think NVIDIA (NASDAQ: NVDA) with data center chips and graphic processing units (GPUs) for cryptocurrency mining and Qualcomm (NASDAQ: QCOM) with its major role on the 5G stage.
Despite a global semiconductor shortage, one that’s pinching an array of industries, SOX is soaring this year.
“SOX has outperformed both the Nasdaq-100 (NDX) and the S&P500 (SPX) in the first five months of 2021, with a gain of 14.0% (price-return basis),” notes Mark Marex, Nasdaq senior product development specialist. “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.”
Sizing Up SOX’s Performance
What’s interesting about the stellar run of SOX is that this is primarily a large cap index. NVIDIA’s market capitalization is around $419 billion. Qualcomm has a market value of $148.51 billion while Texas Instruments (NASDAQ: TXN), another major SOX component, is valued at nearly $170 billion. However, SOX often delivers performances that are on par with a small cap growth benchmark.
“On an individual company level, five of the top 15 index constituents have seen their share prices rise more than 100% over the past 12 months, averaging 86.6% as a group. Only Intel (INTC) recorded a negative return – quite a feat considering the historic breadth and depth of the economic dislocations caused by Covid-19,” adds Marex.
Everyday consumer items, such as smartphones and video game consoles, rely on chips produced by SOX components. On the business-to-business side of the ledge, disruptive technologies, including artificial intelligence (AI), cloud computing, and the Internet of Things (IoT), are powered by semiconductors. That bodes well for SOX over the long haul because many of these innovative technologies are still in the early innings of long-term growth.
As is to be expected, that growth is translatable into top- and bottom-line increases, which SOX components have a history of delivering in significant fashion.
“Over the past five years, global revenues among SOX firms have grown by a rate of nearly 10% compounded annually – despite a slight dip in 2019,” says Marex. “Global net income, meanwhile, has grown by nearly 22% compounded annually – even with a notable drop in 2019 that was mostly recovered during 2020.”
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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.