Semiconductor ETFs Expected To Shine

By Kevin Grewal

As consumer confidence strengthens, global economies grow and capital spending in corporate America is expected to increase, the semiconductor industry and its exchange traded funds (ETFs) are likely to reap the benefits.

According to the latest data from the Conference Board, its index of consumer confidence increased for the third month in a row to its highest level in two years.  This indicates that consumers are starting to see the light at the end of the tunnel and are hopeful that the nation’s economy will stabilize and show signs of growth. 

As this trend continues to emerge, consumers will likely increase spending which was recently seen in the personal computer market.  According to research firm IDC, shipments of personal computers to the United States by 24% in the past quarter and is expected to continue to show signs of prosperity.  This jump in personal computer demand will likely benefit the semiconductor industry.

Additionally, increases in capital spending by domestic corporations are likely to add to the sectors appeal.   According to the Philadelphia Federal Reserve Bank’s monthly index of manufacturing, business are expected to increase manufacturing capital spending.  Similar trends have been seen in New York banks, where the New York capital expenditure index jumped to a 33.33 last month, rising to the highest level in over 30 months. 

This trend is likely to continue as the Institute for Supply Chain Management (ISM) index rose to its highest level August 2004 and a sixth straight month of expansion.   In fact, Texas Instruments (TXN), the second largest U.S. chipmaker, recently announced that it will spend nearly $1 billion to expand operations to keep up with increased demand. 

Overall, increased capital spending is beneficial to chip makers and some suggest that capital expenditures will rise by over 14% in the coming year.   From a global perspective, increases in demand by developing nations, in particularly China, is expected to further boost semiconductors.  

Some ETFs to consider are the following:

  • PowerShares Dynamic Semiconductors (PSI), which holds Micron Technology (MU) and Maxim Integrated Products (MXIM) in its top holdings. PSI closed at $12.18 on Monday
  • iShares S&P GSTI Semiconductor(IGW), which holds Applied Materials (AMAT) and Broadcom Corporation (BRCM) in its top holdings.  IGW closed at $44.44 on Monday.
  • Semiconductors HOLDRs (SMH), which boast Intel (INTC) and Texas Instruments as its top holdings.  SMH closed at $25.30 on Monday.

Although there are numerous positive forces that are likely to boost chip-makers, a hiccup in the expected economic recovery and other risks that could cause these equities to decline in value.   A good to way to protect against these risks is through the use and implementation if an exit strategy which triggers price points at which an upward trend could potentially be coming to an end. 

According to the latest data at, the price points for the aforementioned ETFs are: PSI at $11.57; IGW at $42.83; SMH at $24.45.  These price points fluctuate on a daily basis and reflect changes in market conditions.  Updated data can be found at

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s