Semiconductor ETF Gets A Makeover

by on September 30, 2010 | ETFs Mentioned:

Competition in the semiconductor ETF space has always been fierce, with no fewer than four products (SMH, IGW, XSD, PSI) from four different issuers (Merrill Lynch, iShares, State Street, PowerShares) all targeting a relatively narrow slice of the tech sector. Perhaps aiming to capture a greater portion of this market, iShares recently announced plans to tweak its S&P North American Technology-Semiconductors Index Fund (IGW). The company plans to change the ticker and underlying index of the largest semiconductor ETF (excluding Merrill’s HOLDRS product), which will be listed on the NASDAQ Exchange effective October 15.

The index underlying the fund will change from the S&P North American Technology-Semiconductors Index to the PHLX Semiconductor Sector Index, a modified cap-weighted benchmark consisting of about 30 semiconductor stocks. The ticker will change from IGW to SOXX.

The new index is linked to two leveraged products from Direxion: the Daily Semiconductor Bull 3x Shares (SOXL) and Daily Semiconductor Bear 3x Shares (SOXS). Those funds seek to deliver daily returns equal to 300% and -300%, respectively, of the daily change in the PHLX Semiconductor Sector Index. State Street’s XSD seeks to replicate the S&P Semiconductor Select Industry Index, while the PowerShares fund in the space is linked to the Dynamic Semiconductors Indellidex Index. ProShares also offers a pair of 200% leveraged and inverse leveraged semiconductor ETFs; those products are linked to the Dow Jones U.S. Semiconductors Index. “There has been increased investor interest in a SOX based ETF with the ongoing evolution of the Index, therefore we’re pleased to provide investors with the iShares PHLX SOX Semiconductor Sector Index Fund that will track such a well-known sector index,” said Noel Archard, Head of U.S. iShares Product at BlackRock, in a press release.

A number of ETF issuers have changed indexes over the last year. Vanguard made minor changes to the indexes underlying a number of its sector-specific products, while WisdomTree has adopted new indexes on its currency-hedged products as well [see Inside Hedged Equity ETFs]. Earlier this summer, PowerShares switched the ETF underlying its high yield bond fund, adopting a RAFI benchmark.

Disclosure: No positions at time of writing.