Market Vectors Semiconductor ETF Gets a Spark

by Tom Taulli | November 30, 2012 1:34 pm

Market Vectors Semiconductor ETF Gets a Spark

comp chip1 Market Vectors Semiconductor ETF Gets a Spark[1]Even though the Market Vectors Semiconductor ETF (NYSE:SMH[2]) is off 5% for the year, it’s in the midst of a scorching rally the past couple weeks, with a return of 12%. This compares to a gain of 4% for the S&P 500

Is it time to consider the semis? Maybe so.

SMH is based on a market-cap weighted index of 25 U.S.-listed companies. The top holdings include Intel (NASDAQ:INTC[3]), Taiwan Semiconductor Manufacturing (NYSE:TSM[4]), Texas Instruments (NYSE:TXN[5]), ARM Holdings (NASDAQ:ARMH[6]) and ASML (NASDAQ:ASML[7]). They account for about 52% of the total assets in the ETF.

The fee structure is also reasonable, with an expense ratio of 0.35%.

As should be no surprise, SMH’s holdings are volatile. For the year, Intel’s shares are off by 16%, while ARM’s are up 34%.

Of course, the semiconductor industry is highly sensitive to the global economy, which has been slowing down lately. Another problem is periodic supply-chain disruptions. Recent examples include Japan’s massive earthquake and the flooding in Thailand.

What’s more, the industry is undergoing some major secular changes. PC sales growth has been suffering a long-term decline, which has been a big drag for Intel. Then again, mobile devices have continued to grow at a rapid clip, a trend that has propped up ARM’s shares.

SMH does have a good amount of exposure to mobile. In addition to ARM, other holdings include Skyworks Solutions (NASDAQ:SWKS[8]), Broadcom (NASDAQ:BRCM[9]), Taiwan Semiconductor and ASML. All have posted double-digit returns for 2012. However, it’s disappointing that Qualcomm (NASDAQ:QCOM[10]) isn’t in the portfolio. The company is one of the standout mobile chip providers.

Keep in mind that SMH shouldn’t represent a sizeble portion of an investor’s portfolio (say, no more than 5%). It’s simply too risky. But it could provide some extra juice for those who want to benefit from a rebound in semis, which could be in the early stages right now as mobile continues to grow.

Tom Taulli runs the InvestorPlace blog IPO Playbook[11], a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “How to Create the Next Facebook[12]” and “High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders[13].”  Follow him on Twitter at @ttaulli[14]. As of this writing, he did not hold a position in any of the aforementioned securities.

Endnotes:
  1. [Image]: http://investorplace.com/wp-content/uploads/2010/08/comp_chip1.jpg
  2. SMH: http://studio-5.financialcontent.com/investplace/quote?Symbol=SMH
  3. INTC: http://studio-5.financialcontent.com/investplace/quote?Symbol=INTC
  4. TSM: http://studio-5.financialcontent.com/investplace/quote?Symbol=TSM
  5. TXN: http://studio-5.financialcontent.com/investplace/quote?Symbol=TXN
  6. ARMH: http://studio-5.financialcontent.com/investplace/quote?Symbol=ARMH
  7. ASML: http://studio-5.financialcontent.com/investplace/quote?Symbol=ASML
  8. SWKS: http://studio-5.financialcontent.com/investplace/quote?Symbol=SWKS
  9. BRCM: http://studio-5.financialcontent.com/investplace/quote?Symbol=BRCM
  10. QCOM: http://studio-5.financialcontent.com/investplace/quote?Symbol=QCOM
  11. IPO Playbook: http://investorplace.com/ipo-playbook/
  12. How to Create the Next Facebook: http://www.amazon.com/gp/product/1430246472/ref=s9_simh_gw_p14_d0_i1?pf_rd_m=ATVPDKIKX0DER&pf_rd_s=center-3&pf_rd_r=0GRB6ZMCTYDZVNG7Q7NV&pf_rd_t=101&pf_rd_p=470938811&pf_rd_i=507846
  13. High-Profit IPO Strategies: Finding Breakout IPOs for Investors and Traders: http://goo.gl/pR2F3
  14. @ttaulli: https://twitter.com/ttaulli

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