Semiconductor sector-related exchange traded funds are attracting an influx of new money as investors bet on a resolution for supply chain problems and a global chip shortage.
Semiconductor ETFs have attracted about $6.8 billion in net inflows since the start of the year, outpacing the $5.2 billion in inflows for the sector across all of 2021 and the $2.1 billion for the year prior, Bloomberg reports.
For example, among the biggest semiconductor-related ETFs by assets under management, the iShares PHLX Semiconductor ETF (NasdaqGS: SOXX) added $137 million in net inflows and the VanEck Vectors Semiconductor ETF (SMH) brought in $2.5 billion.
Many are betting on the rebound in the semiconductor space after the benchmark Philadelphia Semiconductor Index declined 21% this year, or over three times the pullback in the S&P 500.
“The underperformance kind of makes sense given the near-term macro environment,” Ross Mayfield, an investment strategy analyst at Baird, told Bloomberg. But “people believe in the long-term growth story, especially as they’ve come into focus this year with the supply chain shortages.”
Fundamentals remain robust, especially with strong demand and industry sales surging by over 20% each month for almost a year.
Meanwhile, Kevin Kelly, the chief executive officer of Kelly ETFs, argued that valuations appear much more attractive, especially after the sell-off in growth-related stocks.
“It’s investors positioning for the long term as semiconductors are at the convergence of multiple thematic demand drivers,” Kelly told Bloomberg, pointing to areas like electric cars, the metaverse, and cryptocurrencies. “If there is a cyclical industry to put new capital to work, semis appear to be an interesting sector to allocate in today’s market.”
However, Frank Cappelleri, a trading-desk strategist at Instinet, warned that the biggest semiconductor ETFs may not see a quick turnaround.
“Oftentimes, an inflection point – a turn higher – doesn’t come until sentiment turns sour,” Cappelleri told Bloomberg. “That may not have to happen now, but continued weakness from here eventually could alter the flow data.”
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