The hot and the soaring semiconductor corner of the broad technology market had a rough ride on Nov 27. The decline came as Morgan Stanly raised concerns on soaring memory chip prices and downgraded a number of chipmakers including Western Digital (WDC – Free Report), Samsung Electronics, and Taiwan Semiconductor (TSM – Free Report).
The dual tailwind of strong demand and high price has benefited the industry throughout the year and this trend now seems to be reversing. Morgan Stanley cautioned that the so-called “super-cycle” in chip demand may be coming to an end, and prices for memory chips will peak soon. As such, the analyst thinks it is now time to reduce exposure to Nand (flash memory) and Asian semiconductor names.
The action took a toll on the industry, leading to profit taking and pushing the chip stocks lower. Samsung tumbled 5.1%, the biggest one-day fall in more than a year, Western Digital plunged 6.7% and Taiwan Semiconductor dropped 4.4%. The weakness has spread to the other players with Micron Technology (MU – Free Report) falling 3% and Nvidia (NVDA – Free Report) slipping 1.1%. The Philadelphia Semiconductor Index fell 1.3%, reflecting the biggest percentage loss in more than two weeks. This suggests some rough trading in the coming days.
ETF Impact
The awful trading in the stock world also pushed the semiconductor ETF space into the red on the day. In particular, VanEck Vectors Semiconductor ETF (SMH – Free Report), PowerShares Dynamic Semiconductors Fund (PSI – Free Report) and First Trust Nasdaq Semiconductor ETF (FTXL – Free Report) stole the show with a nearly 1.5% fall.
Below we profile these ETFs in detail and discuss some of the specifics behind their recent slump:
SMH
This fund provides exposure to 26 securities by tracking the MVIS US Listed Semiconductor 25 Index. It is highly concentrated on the top two firms, TSM and Intel (INTC), at over 10% share each while other firms hold no more than 5.61% of assets. The product has managed assets worth $1.5 billion and charges 36 bps in annual fees and expenses. It is heavily traded with a volume of around 3.3 million shares per day.
