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Innovation, Strong Earnings Could Support Semiconductor ETFs

This article was originally published on ETFTrends.com.

In an aging bull market, investors will have to take a selective approach to equity exposure, and semiconductors and sector-related ETFs could be one of those areas of opportunities.

"Innovation has long supported tech companies’ performance. This year is no exception, we believe. Yet meaningful shifts in technology are creating uneven benefits (and drawbacks) within the sector and beyond. As a result, we advocate a selective approach to tech investing, especially after the recent rally," BlackRock strategists, led by Richard Turnill, said in a research note.

Specifically, the BlackRock strategists argued that semiconductor suppliers could potentially be early winners from the ongoing shift toward high-speed 5G mobile technology and the application of artificial intelligence across industries.

The developing 5G technology is a step up from the previous four generations, providing greater bandwidths and faster internet speeds. Additionally, the upgraded data capacity and ultra-fast speeds could empower and accelerate the application of A.I. across industries.

The strategists believed that semiconductors are well positioned in the ongoing developments in the technology space.

"They are set to benefit from a significant increase in demand for the data and infrastructure required to handle the network traffic," according to BlackRock.

Investors who are interested in a targeted approach to the semiconductors segment can look to sector-specific ETFs, such as the iShares PHLX Semiconductor ETF (SOXX) , which tracks the benchmark PHLX SOX Semiconductor Sector Index.

"Within tech, we like semiconductor firms, thanks to a potential earnings turnaround this quarter," the strategists added.

"We are mindful of crowded positioning as investors chase scarce areas of growth. Bottom line: We do not expect the strong first-quarter performance of tech shares to be sustained, but see selected opportunities in the sector as disruptive innovations create growth opportunities."

Additionally, something like the iShares Exponential Technologies ETF (XT) can provide global exposure to companies identified as leaders across key areas of technological transformation from big data and analytics to nanotechnology and bioinformatics. These companies, which also cross industry sectors such as manufacturing, financial services and healthcare, have the potential to profoundly transform society and may offer substantial investment growth opportunities.

For more information on the tech sector, visit our technology category.

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