It’s been a rough year for tech stocks, but there may be reason to hope for long-term growth.
Market volatility, supply chain issues and rising inflation contributed to the sell-off. The Morningstar survey also suggested that big tech companies could see a significant hit to their third-quarter earnings as a strong dollar eats away at overseas earnings.
Many exchange-traded funds that focus on themes related to technology stocks have had a similarly difficult run. The two largest semiconductor ETFs,
ETF (SOXX) and
The ETF ( SMH ) was trading near a 52-week low at the end of the quarter.
So what’s the good news? The sector — semiconductors in particular — got a boost from Washington this summer.
In August, Congress passed the Chips and Science Act of 2022, legislation that would provide $52.7 billion to U.S. semiconductor companies to conduct research and development, manufacturing and workforce development. The bill also includes provisions to strengthen the supply chain for American companies and spur technological innovation. The bill gives a boost to US chipmakers and other technology companies.
Technology fund experts say the bill could support long-term growth in the sector. “When we think about the economy of the future, we break it down into what we call ‘megatrends,'” says Jay Jacobs, US head of thematic and active equity ETFs at
Black stone Inc.
“Semiconductors are powering every industry in our breakthrough technology megatrend. While we’ve seen these companies take some hits this year, we think it’s important to focus on the next three, five or 10 years. In these time horizons, the opportunity is significant.”
Betting chips
There are a number of thematic ETFs that provide exposure to semiconductor companies as well as other technology companies that rely on chips to operate. The pricing of these funds can fluctuate, and experts warn that tech stocks are not out of the woods yet: Investors may have to hold out for some volatility until the end of the year.
There are plenty of mid-priced options. SOXX, for example, with an expense ratio of 0.43%, tracks an index of US large-cap semiconductor companies, while SMH, carrying an expense ratio of 0.35%, includes both large-cap and mid-cap companies , as well as some foreign companies that are listed in the US, such as
Taiwanese semiconductor manufacturing Co.
There are a bunch of passive funds whose costs run the gamut.
The ETF (SOXQ), which carries an expense ratio of 0.19%, tracks a market-cap-weighted index of 30 U.S.-listed semiconductor companies.
The ETF (XSD) tracks an all-cap index of US semiconductor companies and has an expense ratio of 0.35%.
First Trust Nasdaq Semiconductor
The ETF ( FTXL ), which tracks an index of the 30 most liquid U.S. semiconductor companies, has an expense ratio of 0.60%.
Invesco also has a fund in this category with a quantitative twist –
Invesco Dynamic Semiconductors
ETF (PSI). This fund uses a proprietary quantitative methodology to invest in 30 full-cap semiconductor companies weighted in an index based on their investment return potential. PSI has an expense ratio of 0.56%.
Powered by chips
Some ETFs take a broader view of the chip market. Because semiconductors power some aspect of nearly every major industry in the economy today—most notably technology—some thematic funds give you exposure to both the chips and the industries they power.
Increase ETFs
The ETF (MVPS) created a composite index of the most popular companies in each major technology subsector, including financial technology and healthcare innovation. In this fund you will get companies like chip maker
Nvidia corp.
but also chip-powered companies, including an energy technology maker
Enphase Energy Inc.
and chip car maker
The fund has an expense ratio of 0.49%.
Mike Akins, founding partner of ETF Action, which created the MVPS index, says the composite index can give some exposure to the most popular companies in the chip-fueled sectors. “It’s a diverse set of possibilities. Things like the chip bill could help American companies take more of the market. Anytime you see a strategic support like this, it can affect winners and losers,” he says.
Other thematic funds give more niche exposure.
Simplify Volt Cloud and Cyber Security Breach
The ETF (VCLO) is an actively managed thematic fund that invests in the most popular cloud and cybersecurity companies, sectors that have some overlap with chipmakers. Indeed, the fund has exposure to some of these in addition to companies that use chips for high-performance cloud computing and cybersecurity monitoring, such as
or
But you will pay for active management; the fund’s expense ratio is 0.95%.
Global X Robotics & Artificial Intelligence
ETF (BOTZ) is another example. The fund focuses on robots, but also provides exposure to chip makers like Nvidia, whose products power the machines. The fund has an expense ratio of 0.68%.
Ms. McCann is a writer in New York. She can be reached at reports@wsj.com.
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