Trade Spat's A Boon For This Bearish Chip ETF

Escalating fears of a full-blown trade war between China and the U.S. are not taking prisoners at the sector level. That includes technology stocks and the related exchange traded funds (ETFs).

On Monday, several of the worst-performing ETFs in terms of percentage losses were Internet and technology funds. Semiconductor ETFs were among the offenders. For example, a marquee chip ETF following the PHLX Semiconductor Sector Index (XSOX) slipped nearly 3 percent on Monday, extending its one-month loss to over 6 percent and putting the fund about 12 percent below its 52-week high.

What Happened

As part of his tariff plan, President Trump is threatening to restrict Chinese investment in U.S. technology companies.

“President Donald Trump, already embroiled in a trade battle with China, plans to ratchet commercial tensions higher by barring many Chinese companies from investing in U.S. technology firms, and by blocking additional technology exports to Beijing, the Wall Street Journal reported, citing sources familiar with the issue.

While bad news for the broader market, trade war fears are boosting the Direxion Daily Semiconductor Bear 3X Shares SOXS.

Why It's Important

SOXS, which attempts to deliver triple the daily inverse performance of the PHLX Semiconductor Index, jumped 8.71 percent yesterday on more than double the average daily volume. SOXS has a bullish counterpart, the Direxion Daily Semiconductor Bull 3X Shares SOXL. That tripled leveraged bull fund tumbled 8.83 percent on Monday on above average volume.

The largest components in the PHLX Semiconductor Index are Intel Corp. INTC, Texas Instruments Inc. TXN and NVIDIA Corp. NVDA. Texas Instruments was the best performer of that trio Monday, losing 1.95 percent.

With chipmakers and semiconductor equipment manufacturers slumping, traders are flocking to the bearish SOXS. Over the past month, SOXS is averaging daily inflows of $1.24 million. That is good for one of the best totals among Direxion's leveraged inverse funds during that period.

What's Next

The PHLX SOX Semiconductor Sector Index has a three-year standard deviation of 19.24%, which is nearly 900 basis points above the comparable metric on the S&P 500.

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