Advisors in Focus- March 4, 2021

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

RANKTOP ETFS – BY ALL FAs (Surge Traffic) This WeekTickerTOP STOCKS- BY ALL FAs (Surge Traffic) This WeekTickerTOP INDUSTRIES BY ALL FAs (Surge Traffic) This Week TOP ETF CATEGORIES BY ALL FAs (Total Traffic) This Week
1Direxion Daily Semiconductor Bull 3x SharesSOXLVanEck Vectors Gold Miners ETFGDXBiotechnologyLarge Cap Growth Equities
2SPDR S&P 500 ETFSPYS&P 500 SPDRSPYAuto ManufacturersLeveraged Equities
3Invesco QQQQQQInvesco QQQQQQSoftware – ApplicationAll Cap Equities
4ARK Fintech Innovation ETFARKFProShares Ultra VIX Short-Term FuturesUVXYPackaging & ContainersTechnology Equities
5iShares Silver TrustSLViShares Russell 2000 ETFIWMDrug Manufacturers – Specialty & GenericPrecious Metals
6VanEck Vectors Gold Miners ETFGDXRussell 2000 Value Ishares ETFIWNEntertainmentMaterials
7ARK Genomic Revolution ETFARKGiShares Russell 1000 Value ETFIWDComputer HardwareLeveraged Volatility
8ARK Innovation ETFARKKRussell 1000 Growth Ishares ETFIWFSpecialty RetailHealth & Biotech Equities
9ProShares Ultra VIX Short-Term FuturesUVXYS&P 500 Financials Sector SPDRXLFInternet Content & InformationSmall Cap Growth Equities
10ProShares UltraPro QQQTQQQEsoterica Nextg Economy ETFWUGISemiconductorsEnergy Equities
11SPDR Gold TrustGLDArk Genomic Revolution ETFARKGDiagnostics & ResearchGovernment Bonds
12ProShares UltraShort S&P 500SDSVanEck Vectors Gaming ETFBJKCommunication EquipmentAlternative Energy Equities
13iShares MSCI Global Silver Miners ETFSLVPNuveen ESG Small-Cap ETFNUSCMedical DevicesLarge Cap Blend Equities
14VanEck Vectors Semiconductor ETFSMHSemiconductor Bull 3X DirexionSOXLSoftware – InfrastructureSmall Cap Blend Equities
15Utilities Select Sector SPDR FundXLUFinancial Preferred Invesco ETFPGFConsumer ElectronicsConsumer Discretionary Equities
16Energy Select Sector SPDR FundXLEG-X Silver Miners ETFSILAerospace & DefenseFinancials Equities
17Aberdeen Standard Platinum Shares ETFPPLTGold SPDRGLDCredit ServicesIndustrials Equities
18Financial Select Sector SPDR FundXLFAlerian MLP ETFAMLPInternet RetailGlobal Equities
19iPath Series B S&P 500 VIX Short-Term Futures ETNVXXRussell Mid-Cap Value Ishares ETFIWSConglomeratesAsia Pacific Equities
20ProShares UltraPro Short QQQSQQQiShares Core S&P 500 ETFIVVOil & Gas E&PVolatility

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. 

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