This week, Texas Instruments (NYSE: TXN) announced a $6.5 agreement to buy rival National Semiconductor (NYSE: NSM). The deal came to a juicy 70% premium. In fact, the dealmaking has been heating up in the semiconductor space lately. Another big transaction was Qualcomm’s (NASDAQ: QCOM) $3.3 billion purchase of Atheros Communications (NASDAQ: ATHR).
As should be no surprise, it looks like this is the start of a new wave of deals. After all, the industry needs to consolidate to increase scale. At the same time, major players have to find ways to boost growth.
So is it possible to play this theme with mutual funds? Yes, there are several funds that have a focus on the industry. Here’s a look:
Fidelity Select Electronics (FSELX)
The Fidelity Select Electronics (MUTF: FSELX) fund, which has about $1.2 billion in assets, has a high concentration in the semiconductor industry. For the most part, the allocation is in excess of 80% of the portfolio.
No doubt, the volatility is high. But the returns have been decent. Over the past three years, the average annual return was 10.85%.
To help reduce the swings, the Fidelity fund has a focus on larger companies. The top holdings include Intel (Nasdaq: INTC), Marvell Technology Group (NASDAQ: MRVL), Broadcom (NASDAQ: BRCM), Micron Technology (NASDAQ: MU) and National Semiconductor.
ProFunds Semiconductor UltraSector (SMPIX)
The ProFunds Semiconductor UltraSector (MUTF: SMPIX) fund is based on the Dow Jones U.S. Semiconductor Index. The index consists of 52 companies and has an average market cap of $7.32 billion.
In the case of the ProFunds offering, it is essentially supercharged. That is, the index is leveraged by 150%. So if it rises 1%, the fund will go up by 1.5%. Then again, if it falls by 1%, the fund will drop by 1.5%.
This can certainly mean a wild ride. For the past year, the fund saw a return of 14.53%. But over the last five years, the average annual return was -6.02%
Rydex Electronics (RYELX)
The Rydex Electronics (MUTF: RYELX) fund invests in a broad cross-section of the semiconductor industry. The fund will also use sophisticated derivatives – like options and futures – as well as invest in foreign operators. Oh, and there is a penchant to take positions in smaller firms.
Of course, being nimble is important in trading the semiconductor. To this end, the Rydex fund has a turnover ratio of a stunning 590%.
And the volatility? Yes, it is significant. In 2008, the fund plunged by 50.44%. Then a year later, it was up 69.4%.
Janus Global Technology (JATAX)
One way to reduce the volatility is to look at a general-purpose technology fund that has a strong position in the semiconductor industry. This is the case with the Janus Global Technology (MUTF: JATAX) fund, which has $979 million in assets.
The portfolio manager, Barney Wilson, has a good track record and a sense for value. He’s also not afraid to unload positions that get too pricey.
Wilson is bullish on the semiconductor industry. Some of the top holdings include Atmel (NASDAQ: ATML), Texas Instruments and ON Semiconductor (NASDAQ: ONNN).
For the past five years, the fund has posted an average annual return of 6.59. And for the last year, the return was a 19.41%.
Tom Taulli’s latest book is “All About Short Selling” and his Twitter account is @ttaulli. He does not own a position in any of the stocks named here.
