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Investors Flee Semiconductor ETF ‘SMH’

This article was originally published on ETFTrends.com.

The VanEck Vectors Semiconductor ETF (SMH) followed the broader market lower early Tuesday. Some traders may have seen declines for chip stocks coming because SMH was beset by outflows last week.

In recent weeks, semiconductor exchange traded funds, including SMH, have been drubbed. SMH is lower by about 11% this month. The group is on pace for its worst month in over three years.

“The $753 million VanEck Vectors Semiconductor ETF, known by its ticker SMH, had $574 million of outflows last week, the most since June and almost 40 percent of the fund’s assets. It’s seeing a lot of action in the market, with investors trading more than 141 million shares this month, the heaviest volume since April,” reports Bloomberg.

There are some risks to consider with semiconductor stocks and ETFs. For example, President Donald Trump has pushed for restrictions on trade barriers with China, which might pose a threat to the sector. China is a key market for the global semiconductor industry, consuming more than $100 billion worth of semiconductors or roughly one-third of the world population.

Bearish Views for Chip Stocks

Analysts have recently turned bearish on chip stocks.

“Wall Street turned bearish on chips over the past few months. Morgan Stanley downgraded the sector in August, and Goldman Sachs Group Inc. warned that supply and pricing issues hurting memory chipmakers could worsen in 2019,” according to Bloomberg.

Related: Critical Point for High-Flying Sector ETFs

Investors could be paying up for future catalysts for semiconductor and broader technology names. If there is a silver lining for the rising valuations on chip stocks it is that some industry observers believe the group’s valuations should not be measured in the traditional sense because of the evolution of the semiconductor business.

“Taiwan Semiconductor Manufacturing Co., which is SMH’s biggest holding, tumbled last week after it forecast revenue below analysts’ estimates. The company said it’s facing a smartphone market with little growth, among other issues,” according to Bloomberg.

Intel Corp. (INTC), another major SMH, reports earnings this week.

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

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