Seasonal influences on the semiconductor sector have surfaced again this spring. The sector offers two seasonal investment opportunities each year. The first time frame is from the end of February to the end of May and the second is from the end of September to the end of November. Average return from February to May during the past 10 periods was 9.1 per cent.
Individual semiconductor stocks are known for their volatility. The easiest way to invest in the sector in order to minimize volatility is to own a exchange traded fund that holds a diversified portfolio of stocks in the sector.
Six exchange traded funds in the sector currently are available in North America. Each has distinct characteristics.
HOLDRs Semiconductor is the most actively traded ETF in the sector. The fund holds a basket of 18 U.S. listed semiconductor stocks. A word of caution! The fund is concentrated in three stocks: Applied Materials, Intel and Texas Instruments. They represent 51 per cent of the fund's value.
IShares Philadelphia Semiconductor Index is based on a fund that tracks the semiconductor industry's benchmark. The so called SOX Index is a modified capitalization weighted index holding a diversified portfolio of 30 global semiconductor stocks listed on U.S. exchanges. Management expense ratio is 0.48 per cent.
PowerShares offers the Dynamic Semiconductor ETF . It also is based on a portfolio of 30 semiconductor stocks. Holdings are more equally weighted than the SOX Index. The largest holding has a weight of only 5.25 per cent in the portfolio. Volume is moderate. Management expense ratio is 0.63 per cent.
State Street Global Investors offers the SPDR S&P Semiconductor ETF . The fund holds 28 semiconductor stocks listed on U.S. exchanges. Positions in the fund are equally weighted with each holding representing about 3.5 per cent of the portfolio. Management expense ratio is 0.35 per cent.
PowerShares offers the Ultra Semiconductor ETF and the Ultra Short Semiconductor ETF . Both are based on futures contracts tracking the Dow Jones U.S. Semiconductor Index. Performance of the former corresponds to twice the daily upside performance of the Index. Performance of the latter corresponds to twice the daily downside performance of the Index. Management expense ratio for both is 0.95 per cent.
Seasonal strength in the semiconductor industry in the spring is related to greater demand for semiconductors by the consumer electronics sector prior to the launch of new consumer electronic products for the summer holiday season. Demand this spring and summer is expected to be exceptional due to a series of hot new products coming to market: Apple has just launched the iPad 2; Research in Motion launches its Playbook on April 19th; IPhone 5 is scheduled for launch before summer. Google and related companies also are scheduled to launch a series of new products and services. North American telecom companies are ramping up major marketing programs to launch these products.
The spring period of seasonal strength arrived on schedule this year. Short-term momentum indicators for the Philadelphia Semiconductor Index recorded buy signals in the first week in March. Since then, the sector has gained 9.0 per cent and has outperformed the S&P 500 Index. Short-term momentum indicators already are slightly overbought. The Index recently found short-term resistance at its 50-day moving average at 445.00. Support is indicated at 408.69. Preferred strategy is to buy ETFs in the sector on weakness to near support for a possible seasonal upside move until the end of May.
Don Vialoux is the author of free daily reports on equity markets, sectors, commodities and Exchange Traded Funds. He is also a research analyst for JovInvestment Inc. Reports are available at www.timingthemarket.ca and www.equityclock.com. Follow him on Twitter @EquityClock.
- VanEck Vectors Semiconductor ETF$51.70-0.56(-1.07%)
- iShares PHLX Semiconductor ETF$86.05-0.99(-1.14%)
- Powershares Dynamic Semiconductor Portfolio$24.20-0.36(-1.45%)
- Spdr S&P Semiconductor Etf$41.59-0.65(-1.54%)
- ProShares Ultra Semiconductors$73.89-1.33(-1.77%)
- ProShares UltraShort Semiconductors$44.60+1.04(+2.39%)
- PHILADELPHIA SE SEMICONDUCTOR INDEX$634.90-7.72(-1.20%)
- Updated May 4 3:07 PM -4GMT. Delayed by at least 15 minutes.