(Bloomberg) — Investors are flooding into exchange-traded funds focused on semiconductor stocks, wagering the industry will rebound from the supply-chain snags and chip shortage that have dragged the shares lower.
Semiconductor ETFs have seen roughly $6.8 billion of inflows since the beginning of the year, surpassing the $5.2 billion for all of 2021 and the $2.1 billion for the year before, according to data compiled by Bloomberg.
That represents a show of faith that the sector will recover from the supply-chain turmoil caused by the pandemic, which could worsen as China ushers in a new round of lockdowns to contain outbreaks. That troubles have weighed on the ETFs and pushed the Philadelphia Semiconductor Index to a loss of 21% this year, more than three times the drop in the S&P 500.
“The underperformance kind of makes sense given the near-term macro environment,” said Ross Mayfield, an investment-strategy analyst at Baird. But “people believe in the long-term growth story, especially as they’ve come into focus this year with the supply chain shortages.”
The two biggest funds by assets, iShares Semiconductor ETF (ticker SOXX) and VanEck Semiconductor ETF (ticker SMH), have both dropped more than 20% this year. But they have seen year-to-date inflows of $137 million and $2.5 billion, respectively.
Demand for semiconductors remain sky-high, with industry sales jumping by more than 20% each month for almost a year already. The stock market’s slide has also made valuations more attractive, said Kevin Kelly, the chief executive officer of Kelly ETFs.
“It’s investors positioning for the long term as semiconductors are at the convergence of multiple thematic demand drivers,” he said, such as electric cars, the metaverse and cryptocurrencies. “If there is a cyclical industry to put new capital to work, semis appear to be an interesting sector to allocate in today’s market.”
While sentiment around the industry remains hopeful, Frank Cappelleri, a trading-desk strategist at Instinet, said the biggest semiconductor ETFs may not see a turnaround in the near term.
“Oftentimes, an inflection point — a turn higher — doesn’t come until sentiment turns sour,” Cappelleri said. “That may not have to happen now, but continued weakness from here eventually could alter the flow data.”
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