Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you’d like to add some semiconductor-related stocks to your portfolio but don’t have the time or expertise to hand-pick a few, the iShares PHLX Semiconductor ETF could save you a lot of trouble. Instead of trying to figure out which companies will perform best, you can use this ETF to invest in lots of them simultaneously.
The basics
ETFs often sport lower expense ratios than their mutual fund cousins. The iShares ETF’s expense ratio — its annual fee — is a relatively low 0.48%.
This ETF has performed reasonably, beating the world market over the past three and five years, but lagging it over the past 10. As with most investments, of course, we can’t expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.
Why semiconductors?
Our growing world population will demand more and better high-tech products and services over time, boosting the business of successful technology-oriented companies. And these days, much of the technology we use is built on semiconductors.
More than a handful of semiconductor-related companies had strong performances over the past year. Micron Technology, Inc. (NASDAQ:MU), for example, more than doubled. Still, its forward P/E is near 9, suggesting it has more room to grow as it successfully adapts to a changing market. Micron’s purchase of Japanese manufacturer Elpida has boosted its capacity, its pricing power, and its relationship with Apple. It also generates cash that can be used for share buybacks or to reinstate its dividend of yore. There are still concerns, though, such as competition and Micron Technology, Inc. (NASDAQ:MU)’s debt. Micron Technology, Inc. (NASDAQ:MU) beat expectations for both revenue and earnings in its last quarter, and is downsizing its workforce by about 5%. Investors should keep the industry’s cyclicality in mind.
Other companies didn’t do quite as well over the last year, but could see their fortunes change in the coming years. Israel-based Mellanox Technologies, Ltd. (NASDAQ:MLNX), for example, shed 66%, “voluntarily” delisting itself from the Tel Aviv Stock Exchange. That will at least save it some money, and analysts at Stifel suggest that the company might rebound from here. Its last few years were quite strong, as it invested heavily in cloud computing. Its second quarter featured estimate-topping earnings and revenue, but at current levels its stock doesn’t seem bargain-priced. Mellanox Technologies, Ltd. (NASDAQ:MLNX) recently bought Kotura, a high-speed networking technology company.
Audio chip maker Cirrus Logic, Inc. (NASDAQ:CRUS) is down 46%, having tumbled after reporting disappointing quarterly results and guidance. Bears worry about its reliance on Apple, which accounted for some 82% of revenue in its last fiscal year, though Cirrus Logic, Inc. (NASDAQ:CRUS) has been lining up other customers. They also fear that lower-priced iPhones could hurt Cirrus and think its growth is due to slow. On the other hand, the stock got a boost recently on news that another chipmaker, Avago, expected strong upcoming sales, presumably via Apple.
