2023-08-23 14:58:45 ET
Summary
- Invesco Dynamic Semiconductors ETF provides exposure to the U.S. semiconductor industry through a unique quantitative methodology.
- PSI's portfolio focuses on prominent companies in the semiconductor space, offering stability and diversity.
- Despite potential risks and market fluctuations, PSI has the potential for long-term growth and is a strategic addition to portfolios.
You don't learn to walk by following rules. You learn by doing, and by falling over. - Richard Branson
The Invesco Dynamic Semiconductors ETF ( PSI ) is a passively managed fund that aims to provide investors with exposure to the U.S. semiconductor industry. The fund, launched and managed by Invesco Capital Management LLC, is designed to track and replicate the performance of the Dynamic Semiconductor Intellidex Index.
The index's methodology does not follow the traditional market-cap weighting approach. Instead, it selects and weighs its holdings using a proprietary quantitative methodology that considers various factors, including price and earnings momentum, risk factors, and valuation.
PSI's portfolio comprises mid-cap and large-cap stocks of semiconductor technology and manufacturing companies, along with other companies involved in various stages of the semiconductor value chain. The fund has a strong focus on prominent companies within the semiconductor space, providing a level of stability and diversity to an otherwise very concentrated fund.
The fund's resilience to market fluctuations and potential for growth despite adverse industry projections make PSI a compelling choice for investors looking for long-term returns.
Analyzing the Fund's Holdings
The fund is relatively concentrated in growth companies, providing a balance of stability and diversity in a specialized sector like semiconductors. This balance, coupled with PSI's unique investment methodology, makes it a potentially profitable choice for investors interested in the semiconductor space.
Fund's Risk Profile
While PSI's performance is commendable, it's essential to consider the inherent risks associated with the fund. PSI's high annualized volatility signifies a larger potential risk and price changes for a near-term outlook. Furthermore, the fund's turnover rate of 84%, significantly higher than the median for all ETFs, suggests frequent portfolio changes, which could lead to inconsistent performance and unpredictable returns.
Relative to the S&P 500 ( SPY ), it's had roughly the same performance as the large-cap indices, with more volatility. I find this dynamic interesting in the context of AI mania and semiconductor demand.
A Look at the Global Semiconductor Landscape
The global semiconductor industry is currently grappling with numerous challenges, including a slump in China's semiconductor equipment purchases and a projected decline in semiconductor revenue. These challenges, however, may present opportunities for PSI. For instance, the U.S. is looking to boost domestic chip production, which could be profitable for funds like PSI that focus solely on the U.S. Furthermore, with China's slump, the global demand for semiconductors could potentially shift towards the U.S. and its allies.
Future Outlook and Conclusion
Despite short-term volatility and potential macroeconomic headwinds, the long-term outlook for PSI is promising so long as the screening criteria are validly backtested. Investors interested in gaining exposure to the semiconductor industry could consider PSI as a strategic addition to their portfolio. However, I would caution everyone here that the broader environment does seem to have some significant risks, and a recession still looks very, very possible.
For further details see:
PSI: An Interesting Semiconductor Play