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As the market value of the chip industry evaporates by $1 trillion, ETF investors are making large purchases during this wave of selling. A fund that triples investors' daily exposure to this industry is set to record a record level of capital inflows this week.
Data shows that the $72 billion VanEck semiconductor fund (code SMH) has attracted over $430 million in capital inflows over the past three trading days, and this week's capital inflows are expected to reach their highest level since early September. Some investors are even more bold, investing approximately $3.8 billion daily in the triple-leveraged Direxion daily semiconductor triple long ETF ( SOXL ), despite the fund's market value having fallen by nearly 21% this week. Such a scale of capital inflows is sufficient for this $19 billion fund to set a new record for weekly capital inflows.
However, the overall environment is far from reassuring: As investors' concerns about spending on artificial intelligence and intensifying global competition continue to exert pressure, the Philadelphia Semiconductor Index has fallen by 12% over the past six trading days, with the market value of its constituent stocks shrinking by approximately $1 trillion. Concerns about overly high valuations and rising interest rates have also exacerbated the volatility in this sector.
VettaFi, the head of industry and sector research, stated that the recent sell-offs are "identical to several declines that occurred earlier this year."
Islam said, "Although the long-term demand prospects remain strong, semiconductors ETF have increasingly become a popular tool for tactical trading. Investors buy in when the market is weak and take profits during periods of upward movement."
This has always been a popular strategy, especially among retail investors. Whenever the market is under pressure, they tend to buy on dips instinctively, betting that the market will rebound as it has done several times before this year. Investors who have held onto their positions throughout the year have also reaped substantial returns: The VanEck Semiconductor Fund has risen by 57% this year, the Direxion Daily Semiconductor 3x Long Fund has increased by 300%, and the ETF Fund has soared by 163%.
Baird Strategas Chief ETF Strategist Todd Sohn stated: "The pullback trend in semiconductor stocks has accelerated again, but this has not yet truly curbed investors' desire to buy on dips using leverage."
