Global Semiconductor Crisis: A Trader's Opportunity With This Popular ETF

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

What do you think of when you hear the words “Silicon Valley”? If your mind conjures up images of mammoth tech organizations like Google, Netflix, and Facebook, small scrappy startups with lots of venture funding, and a hit HBO show, you’re probably among the majority of folks. However, software and startups are not the original cast of characters, and with these players often taking most of the headlines, it can be easy to forget about the hardware revolution that took place and the semiconductor manufacturers that gave the region its name.

It seems that in the last 5 years, a lot of the world has also forgotten just how important these tiny devices are to the tech-filled lives we lead. This year has been a serious wake-up call. 

Everyone Needs More Chips

Semiconductor sales were already growing, but COVID-19 launched a scramble as demand for computers, smart devices, and video game technology spiked, in conjunction with tightened sanctions on Chinese chip companies. One outlier was the auto industry; predicting that car sales would be significantly lower for an extended period of time, big manufacturers around the globe canceled huge orders for semiconductors and related components. Unexpectedly, car sales recovered quickly, and the surplus from the orders had already been bought out by electronics manufacturers with an estimated 1.3 million fewer vehicles because of the shortage.

Pushed by pressure from manufacturers and citing defense and national security concerns, the White House responded with an ambitious goal to empower American semiconductor capabilities: a proposed $37 billion investment to boost chip manufacturing, with billions going toward research, development, and startups to ensure that the U.S. stays ahead of China. 

Getting In On the Action

All this equates to significant opportunities in the industry for increased growth and profits. Enter the Direxion Daily Semiconductor Bull 3x Shares SOXL. With a three times daily leverage on the PHLX Semiconductor Sector Index, SOXL has managed to rise 20.88% in the past month (as of 4/21/21), and tracked for a total YTD Daily Total Return of 31.03%. 

With the shortage capable of dragging on for up to a couple of years by many accounts, the case for an ETF like SOXL seems to be a compelling option for traders with a bullish outlook on the semiconductor industry. Investors should take a serious look at the gravity of the semiconductor shortage and consider creating positions to take advantage of the significant and ongoing opportunity. 

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Shares of the Direxion Shares are bought and sold at market price (not NAV) and are not individually redeemed from a Fund. Market Price returns are based upon the midpoint of the bid/ask spread at 4:00 pm EST (when NAV is normally calculated) and do not represent the returns you would receive if you traded shares at other times. Brokerage commissions will reduce returns. Fund returns assume that dividends and capital gains distributions have been reinvested in the Fund at NAV. Some performance results reflect expense reimbursements or recoupments and fee waivers in effect during certain periods shown. Absent these reimbursements or recoupments and fee waivers, results would have been less favorable.

Direxion Shares Risks – An investment in each Fund involves risk, including the possible loss of principal. Each Fund is non-diversified and includes risks associated with the Funds’ concentrating their investments in a particular industry, sector, or geographic region which can result in increased volatility. The use of derivatives such as futures contracts and swaps are subject to market risks that may cause their price to fluctuate over time. Risks of each Fund include Effects of Compounding and Market Volatility Risk, Leverage Risk, Market Risk, Market Disruption Risk, Aggressive Investment Techniques Risk, Counterparty Risk, Intra-Day Investment Risk, and risks specific to the Semiconductor Industry. Companies that are in the semiconductor industry may be affected by particular economic or market events, which may, in certain circumstances, cause the value of securities of all companies in the semiconductor sector of the market to decrease. Additional risks include, for the Direxion Daily Semiconductor Bull 3X Shares, Daily Index Correlation/Tracking Risk and Other Investment Companies (including ETFs) Risk, and for the Direxion Daily Semiconductor Bear 3X Shares, Daily Inverse Index Correlation/Tracking Risk, and risks related to Shorting and Cash Transactions. Please see the summary and full prospectuses for a more complete description of these and other risks of each Fund.

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The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.