The present chip shortage is certainly putting the pinch on various industries who need the processing power. As such, semiconductors top the fund flow leader board on ETF Database, which includes assets like the VanEck Vectors Semiconductor ETF (SMH).
SMH seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS® US Listed Semiconductor 25 Index. The fund normally invests at least 80% of its total assets in securities that comprise the fund’s benchmark index.
The index includes common stocks and depositary receipts of U.S. exchange-listed companies in the semiconductor sector. Such companies may include medium-capitalization companies and foreign companies that are listed on a U.S. exchange.
With SMH, investors are exposed to:
- Highly Liquid Companies: The index seeks to track the most liquid companies in the industry based on market capitalization and trading volume.
- Industry Leaders: An index methodology favors the largest companies in the industry.
- Global Scope: Its portfolio may include both domestic and U.S. listed foreign companies, allowing for enhanced industry representation.
The fund is up about 10% the last 5 days 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.
Are More Supply Shocks Ahead?
Under the hood of SMH is a portfolio comprised of a who’s who in the semiconductor industry. Big names include Taiwan Semiconductor Manufacturing, Nvidia Corp, and Intel.
All semiconductor names are feeling the same pangs of a low supply, high demand economic backdrop.
“A six-decade-old invention, the lowly chip, has gone from little-understood workhorse in powerful computers to the most crucial and expensive component under the hood of modern-day gadgets,” a Bloomberg article noted. “That explosion in demand—unexpectedly goosed during the Covid-19 pandemic for certain industries like smartphones and PCs—has caused a near-term supply shock triggering an unprecedented global shortage.”
“In February, lead times—the duration between when an order for a chip is placed and when it actually gets filled—stretched to 15 weeks on average for the first time since data collection started in 2017, according to industry distributor data from Susquehanna Financial Group,” the article added. “Lead times for Broadcom Inc.—a barometer for the industry because of its involvement across the supply chain—extended to 22.2 weeks, up from 12.2 weeks in February 2020.”
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