March marks one year into this global pandemic.
As lines snake around vaccination sites and urban dwellers play a modern day “Hunger Games” to get a coveted jab in the arm, investors are obviously looking to the horizon.
According to research from McKinsey, digital adoption has increased 80% since the pandemic. Technology is going to be a key driver post pandemic. Semiconductors will take a front and center role.
TrackStar data, a sentiment read on advisor ticker research, saw an upswing of searches done on technology ETFs. Direxion 3x Semiconductor Bull (SOXL) was #1 on our list.
TrackStarIQ Data
| RANK | TOP ETFS – BY ALL FAs (Surge Traffic) This Week | Ticker | TOP STOCKS- BY ALL FAs (Surge Traffic) This Week | Ticker | TOP INDUSTRIES BY ALL FAs (Surge Traffic) This Week | TOP ETF CATEGORIES BY ALL FAs (Total Traffic) This Week |
|---|---|---|---|---|---|---|
| 1 | Direxion Daily Semiconductor Bull 3x Shares | SOXL | VanEck Vectors Gold Miners ETF | GDX | Biotechnology | Large Cap Growth Equities |
| 2 | SPDR S&P 500 ETF | SPY | S&P 500 SPDR | SPY | Auto Manufacturers | Leveraged Equities |
| 3 | Invesco QQQ | QQQ | Invesco QQQ | QQQ | Software – Application | All Cap Equities |
| 4 | ARK Fintech Innovation ETF | ARKF | ProShares Ultra VIX Short-Term Futures | UVXY | Packaging & Containers | Technology Equities |
| 5 | iShares Silver Trust | SLV | iShares Russell 2000 ETF | IWM | Drug Manufacturers – Specialty & Generic | Precious Metals |
| 6 | VanEck Vectors Gold Miners ETF | GDX | Russell 2000 Value Ishares ETF | IWN | Entertainment | Materials |
| 7 | ARK Genomic Revolution ETF | ARKG | iShares Russell 1000 Value ETF | IWD | Computer Hardware | Leveraged Volatility |
| 8 | ARK Innovation ETF | ARKK | Russell 1000 Growth Ishares ETF | IWF | Specialty Retail | Health & Biotech Equities |
| 9 | ProShares Ultra VIX Short-Term Futures | UVXY | S&P 500 Financials Sector SPDR | XLF | Internet Content & Information | Small Cap Growth Equities |
| 10 | ProShares UltraPro QQQ | TQQQ | Esoterica Nextg Economy ETF | WUGI | Semiconductors | Energy Equities |
| 11 | SPDR Gold Trust | GLD | Ark Genomic Revolution ETF | ARKG | Diagnostics & Research | Government Bonds |
| 12 | ProShares UltraShort S&P 500 | SDS | VanEck Vectors Gaming ETF | BJK | Communication Equipment | Alternative Energy Equities |
| 13 | iShares MSCI Global Silver Miners ETF | SLVP | Nuveen ESG Small-Cap ETF | NUSC | Medical Devices | Large Cap Blend Equities |
| 14 | VanEck Vectors Semiconductor ETF | SMH | Semiconductor Bull 3X Direxion | SOXL | Software – Infrastructure | Small Cap Blend Equities |
| 15 | Utilities Select Sector SPDR Fund | XLU | Financial Preferred Invesco ETF | PGF | Consumer Electronics | Consumer Discretionary Equities |
| 16 | Energy Select Sector SPDR Fund | XLE | G-X Silver Miners ETF | SIL | Aerospace & Defense | Financials Equities |
| 17 | Aberdeen Standard Platinum Shares ETF | PPLT | Gold SPDR | GLD | Credit Services | Industrials Equities |
| 18 | Financial Select Sector SPDR Fund | XLF | Alerian MLP ETF | AMLP | Internet Retail | Global Equities |
| 19 | iPath Series B S&P 500 VIX Short-Term Futures ETN | VXX | Russell Mid-Cap Value Ishares ETF | IWS | Conglomerates | Asia Pacific Equities |
| 20 | ProShares UltraPro Short QQQ | SQQQ | iShares Core S&P 500 ETF | IVV | Oil & Gas E&P | Volatility |
What’s more, the SOXL cracked the Top 20 in searches by FAs with over $1 billion in assets under management. The Semiconductors cracked the Top 10 in industry searches.
Here’s why:
2020 had the semiconductor sector in whipsaw mode. The demand for chips sky-rocketed driven by a 5G supercycle, hyper-scale datacenter growth, work-from-home needs, and auto companies all scrambling to fill obligations.
But COVID-19 hit, production slowed down, rare earth materials became increasingly difficult to mine and factories temporarily shut down. It’s econ 101: low supply, with high demand drove up price. The challenge of capacity utilization took hold. Companies like Taiwan Semi (TSM), the world’s largest semiconductor, had trouble getting supply back online after running into issues with customer cancellations. Uncertainty plagued the sector.
To add to the insanity, China gobbled up more than its share of the chip supply in 2020 as it front-end loaded orders ahead of U.S. trade sanctions.
But like a George Lucas film, a new hope came in the form of an executive order.
On February 24, President Joe Biden signed an executive order meant to address the chip shortage. It included a 100-day review of products ranging from semiconductors to electric vehicles.
President Biden met with a group of bipartisan lawmakers to discuss the shortage.
Senator Chuck Schumer, D-N.Y., said, “semiconductor manufacturing is a dangerous weak spot in our economy and in our national security.” Manufacturing and security are two key elements of the G.O.P. roadmap, so in a rare instance of bipartisanship. We may want to take a picture because it is possible we will not see Schumer and the G.O.P. on the same page again. Investors prefer to see the two sides find common ground on any issue.
Taking a look at the SOXL:
The SOXL is outpacing the VanEck Semiconductor ETF in advisor searches for reasons we can’t understand. The SOXL is a leveraged ETF created to provide 3x daily exposure to the semiconductor industry. It is designed for aggressive traders looking to make a 1-day bet on the PHLX Semiconductor Stock Index.
The index uses swap agreements and futures contracts to obtain its leverage. It rebalances its 3x leverage daily which means returns may not mirror the moves in the Semi Index. The expense ratio is 0.96% due to this daily rebalancing activity. Why? ETF managers want payment for the effort!
The underlying index it tracks holds 30-U.S. listed companies and caps weighting at 8% to minimize volatility from bellwethers. At the end of the day, it is a leveraged bet on a concentrated group of companies.
The 411 on QQQ:
If investors are in the midst of a “great rotation” out of tech, why is it ranking so high on TrackStar? Here is the breakdown:
Tech was the darling sector during the pandemic. Investors rushed into the names as they saw value in its functionality. This led to skyrocketing valuations. Eventually, investors went shopping elsewhere for value.
The vaccine rollout presented that opportunity. Interest rates rose as expectations for a re-opening of the global economy took hold. A cyclical rotation was underway and we continue to see it play out with the Nasdaq coming in to test 2021 lows.
Why would FAs show interest in a group under selling pressure?
A fair question. You will hear a lot from Elliott Wave traders about the neckline in the QQQs breaking today. The technical damage does raise red flags for shorter-term traders. FAs have a longer holding period. They stalk stocks in search of favorable entries and ‘average down’ into these positions.
The group fundamentals remain strong. Demand pipelines remain robust. One phenomenon promises to keep fundamentals in play… a global semiconductor shortage.
The semiconductor theme within tech is something we can understand. Stock prices are falling and valuations are more attractive at current levels. The fundamental landscape provides a tailwind for demand as companies work through the supply shortage. The same day President Biden signed the executive order, General Motors (GM) CEO Mary Barra said the worst of the supply shortage is behind them. This sets up a nice runway for semiconductor earnings over the next couple of quarters. FAs are certainly following this story as it unfolds.