The semiconductor industry is cyclical in nature and for investors to capitalize on it, timing is important. Exchange traded funds that focus on this sector are an intelligent choice as they mitigate risk and trade with the ease of single transaction.
Market Vectors Semiconductors ETF (NYSEArca: SMH) has been rated “Neutral” by S&P Capital IQ, as a way to access the sector for a turnaround in 2013. The research firm recently noted that wafer manufacturing utilization rates for semiconductors are running in the low to mid 80% range. They are expected to end 2012 in the high 80% range. [Micron Mals Semiconductor ETF After Double Top]
“According to 20 years’ worth of data compiled by FactSet Research, chip stocks have tended to rise 11% in the first four months of the year, fall 4% over the next five months, and then finish the year with a strong 7% gain over the final three months. Said another way, from October 1 through the end of April, this group has historically tacked on an 18% gain,” David Sterman wrote on Financial Advisor Magazine. [ETF Spotlight: Semiconductors]
Overall, industry reduction forthe semiconductor sector is over and was finished in the first quarter of 2012. The growth seen in the industry over the second quarter is not sustainable and can be traced back to the profits of Apple (APPL) and Samsung.C. Armacost for S&P CapitalIQ reports that slow third quarter performance and related fundamentals has been disappointing so far.
Since one-third of semiconductor sales are driven by the PC world, sales of such computers will be the main driver of growth for the second half of 2012, reports S&P Capital IQ. [ETF Chart of the Day: Semiconductors]
David Sterman for FA Magazine reports that chip stocks tend to trade higher in the Fall and Winter, after weak Summer trading patterns. Citigroup’s Terence Whalen’s research colleague, Glen Yeung, cites a more tangible reason for optimism. He thinks the next few quarters will bring the release of a range of new products from Apple and others that should help chip industry sales grow nicely into 2013.
Other semiconductor ETFs:
- SPDR S&P Semiconductor ETF (NYSEArca: XSD)
- PowerShares Dynamic Semiconductor Portfolio (PSI)
Market Vectors Semiconductors ETF Tisha Guerrero contributed to this article.
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.