Buffett ApprenticeXSD: If you are bullish on semiconductors, it is recommended to follow.
XSD is an ETF that tracks the S&P Semiconductors Select Industry Total Return Index. As an ETF focused on the U.S. semiconductor industry, unlike many broad-based indices, XSD is a typical sector-specific ETF concentrating on semiconductors, somewhat similar to domestic chip ETFs.
Therefore, this is a genuine hard-tech ETF index.
Outstanding semiconductor companies listed in the U.S. are included in the index, such as Applied Materials, Micron, First Solar, SGH, and other leading companies in the semiconductor industry.
Notably, both First Solar and SGH are listed companies related to solar cell components. Their materials and equipment are similar to those in the semiconductor industry, hence their inclusion in the semiconductor sector as index constituents.
Given that the semiconductor industry is typically capital-intensive and technology-intensive, the number of players in this field is naturally limited, making it prone to monopolistic competition. In many niche segments, a few leading companies can dominate the majority of the market share and reap the benefits of monopolistic competition.
For example, in the memory sector where Micron operates, the top three companies—Samsung Electronics, SK Hynix, and Micron—hold about 70% of the market share. Their collective actions can significantly influence the prices of end products. Starting in the second half of 2023, memory manufacturers began planning price hikes, with increases as high as 30%. While downstream manufacturers felt the pinch, they had no choice but to accept.
Sometimes, even if companies are willing to accept price hikes, they may not secure sufficient supply. Recently, Samsung has started ramping up production. With both volume and prices rising, Samsung, SK Hynix, and Micron are likely to reap substantial profits.
Many other leading companies face similar situations.
However, this leads to some volatility in company performance, and the index as a whole exhibits cyclicality. Over the past 52 months, XSD has gained 13.84%, a moderate return.
That said, XSD is clearly a highly volatile product, offering investors numerous opportunities for swing trading. If investors can buy low and sell high amid market fluctuations, they may achieve decent returns within a wide trading range.
Recently, with improving industry sentiment, XSD has surged again, nearing its peak from the second half of 2021. Whether it will pull back or continue to break higher is worth watching.$SPDR S&P Semicon(XSD.US)
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