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Chipmakers are pouring billions into ETFs because of stock drops

(Bloomberg) — Investors are flooding in on exchange-traded funds focused on semiconductor stocks, betting the industry will rebound from supply-chain shocks and chip shortages that have pulled stocks lower.

Semiconductor ETFs have seen inflows of about $6.8 billion since the start of the year, surpassing $5.2 billion for all of 2021 and $2.1 billion a year ago, according to data compiled by Bloomberg.

It represents a display of confidence that the sector will recover from the supply-chain turmoil caused by the pandemic, which could worsen as China begins a new round of lockdowns to contain the outbreak. Is. That trouble has weighed on the ETF and pushed the Philadelphia Semiconductor Index to a loss of 21% this year, more than a three-fold decline in the S&P 500.

“Given the near-term macro environment, underperformance makes sense,” said Ross Mayfield, an investment-strategy analyst at Baird. But “people believe in the long-term growth story, especially as they come to mind this year with supply chain constraints.”

The two biggest funds by assets, the iShares Semiconductor ETF (SOXX) and the VanEck Semiconductor ETF (SMH), have both fallen more than 20% this year. But they have seen inflows of $137 million and $2.5 billion, respectively, year-over-year.

Demand for semiconductors is skyrocketing, with industry sales growing by more than 20% every month for almost a year already. Kevin Kelly, CEO of Kelly ETF, said the stock market’s decline has also made valuations more attractive.

“This is the position of investors for the long term as semiconductors are at the convergence of several thematic demand drivers,” he said, such as electric cars, metaverses and cryptocurrencies. “If there is a cyclical industry to put new capital to work, then Semi appears to be an interesting area to allocate in today’s market.”

While sentiment around the industry remains optimistic, Frank Capellari, a trading-desk strategist at Instinet, said the largest semiconductor ETFs may not see a turnaround in the near-term.

“Often, an inflection point — a high turn — doesn’t come until the sentiment turns sour,” Capelliri said. “It shouldn’t happen now, but continued weakness from here could eventually change the flow data.”

– With the help of Elaine Chen.

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