Is SOXL the Most Dangerous ETF in the Market?

The semiconductor industry has experienced extreme volatility in 2024, leaving investors wondering how to play the sector.

The Direxion Daily Semiconductor Bull 3X Shares ETF (SOXL) offers triple leverage on semiconductor stocks, magnifying both gains and losses.

While the fund surged over 100% in the past year, it’s down more than 32% in the last three months.

Our TrackStar data shows growing interest in semiconductor ETFs as investors try to capitalize on the AI boom driving chip demand.

Yet, many don’t realize just how dangerous these leveraged products can be.

Here’s what you need to know before considering this high-stakes ETF.

Key Facts About SOXL

• Net assets: $10.3 billion
• 12-month trailing yield: 1.01 %
• Inception: March 11, 2010
• Expense ratio: 0.76%
• Number of holdings: 31

SOXL attempts to deliver three times the daily performance of the ICE Semiconductor Index. 

Unlike traditional ETFs that simply track an index, SOXL uses complex financial instruments including swaps and futures to achieve its leverage. 

This means the fund must rebalance daily, which can lead to significant tracking error over longer periods.

The fund’s top holdings reflect the major players in the semiconductor industry:

• Advanced Micro Devices (8.85% of total assets) – High-performance processors and graphics
• Broadcom Limited (8.48% of total assets) – Diverse semiconductor and infrastructure software
• Nvidia (8.15% of total assets) – AI and graphics processing leaders
• Qualcomm (6.07% of total assets) – Mobile technology and communications chips
• Texas Instruments (6.03% of total assets) – Broad-based semiconductor solutions

Source: Direxion

Performance

The performance numbers tell a story of extreme volatility as you can see massive drops in the past month, yet huge gains over the past year, losses over three years, and then gains over the longer-periods.

These wild swings demonstrate why SOXL isn’t suitable for long-term holding. 

A 3x leveraged ETF can lose most of its value during sustained market downturns, even if the underlying index eventually recovers.

Source: Direxion

Competition

Our TrackStar data highlighted a few other leveraged ETFs popular among financial pros.

• ProShares UltraPro QQQ (TQQQ): While not purely semiconductor-focused, this 3x leveraged Nasdaq 100 ETF provides significant tech exposure with a 0.84% expense ratio and better liquidity.
• ProShares UltraPro Short QQQ (SQQQ): The inverse of TQQQ, this fund moves in the opposite direction of tech stocks, offering a hedge against semiconductor weakness.
• Direxion Daily China 3x Bull Shares (YINN): Another leveraged ETF with significant tech exposure but focused on Chinese markets with a higher 1.47% expense ratio.
• Direxion Daily Small Cap Bull 3X Shares (TNA): Offers leveraged exposure to small-cap stocks, including some semiconductor companies, with a 1.08% expense ratio.

Surprisingly, the TQQQ vastly outperforms the SOXL despite semiconductors being one of the sectors in the past few years.

However, the other ETFs illustrate the danger of holding leveraged ETFs for long periods. Because even if the underlying goes nowhere, you can still lose money.

Our Opinion 2/10 

SOXL is more of a trading vehicle than an investment, and we strongly caution against using it in a long-term portfolio.

The daily rebalancing requirement means returns won’t precisely match 3x the index over longer periods, and the compounding of daily returns can work against you in volatile markets.

While the semiconductor industry remains attractive for long-term investors, we recommend using non-leveraged alternatives or directly buying semiconductor stocks instead of taking on the extreme risks of SOXL.

The only investors who should consider SOXL are experienced traders with high-risk tolerance who understand the mathematical implications of leveraged ETFs and plan to hold for very short periods.

For everyone else, this ETF could be a portfolio killer.