What’s happening?
It is not just the pandemic that has been disastrous for certain industries.
Others have suffered for far more mundane reasons – they have run out of stock.
That’s a problem in any circumstance, but particularly for semiconductors and microprocessor chips, where there is a huge demand. It appears that the effect of the long talked about ‘internet of things’, in which our fridges will be plotting with one another, has finally arrived.
Flying: Prices in this sector have already risen courtesy of the tech recovery last year
Actually, it is not so much those verbose automatons, but rather cars and other high-tech items, all of which increasingly need greater capacity and thus more magic processing chips with everything.
Why Does It Matter?
At a time when the world is trying to manage its way out of the economic coronary of last year, the last thing industry needs is further production hold-ups.
Rising demand and squeezed supplies were bad enough, but add a trade war with China and the meteorological disasters in the southern US (home of some of the largest chip makers), and the much-needed supply lines have been interrupted.
What Should I Do?
Prices in this sector have already risen courtesy of the tech recovery last year, and although there have been short-term manufacturing issues, the supply shortage and increased demand have a far longer tail.
Production will eventually catch up, but for the time being there is certainly a shortfall. This will mean not just more demand but also further takeover activity.
Any Suggestions?
In the UK we do not have a huge number of quoted companies. But CML Microsystems has expanded successfully and produces ‘mixed-signal, Radio Frequency and Microwave semiconductors for global communications markets’.
The shares have recovered but are off previous highs. However, for a less risky approach to the sector look for a broad passive fund. There are a range of alternatives but the iShares PHLX Semiconductor ETF would give much broader coverage.
This is easily the largest semiconductor-focused ETF and one of the most extensively diversified. It invests in companies engaged in the design, distribution, manufacture and sale of semiconductors.
The fund skews heavily towards large-cap stocks and gives larger allocations to companies with greater semiconductor industry exposure.
Justin Urquhart Stewart co-founded fund manager 7IM and is chairman of investment platform Regionally.
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