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Williamstown, MA, United States, 2006/04/19 - With a few exceptions, the sector has been riding strong demand for consumer products from cell phones to personal computers. Stock prices have risen since manufacturers and equipment makers cleaned up an inventory glut that drove stocks down in 2004.
Monday was not a good day for semiconductor stocks. When a UBS analyst said chipmakers likely wouldn’t increase spending in the second half of 2006, the Philadelphia Semiconductor Index (SOX) fell nearly a percentage point on the day and chip stocks pulled the NASDAQ into negative territory.
Monday's most active stocks included: Pfizer (NYSE: PFE), Lucent Technologies (NYSE: LU), Nortel Networks (NYSE: NT), Time Warner (NYSE: TMX), iShares Japan Index Fund (AMEX: EWJ), General Electric (NYSE: GE), iShare Russell 2000 Index (AMEX: IWM), and Energy Select SPDR (AMEX: XLE).
That’s the bad news. The good news for investors in PowerShares Dynamic Semiconductors Portfolio (PSI) is that Monday was a rare down day for a fund that hasn’t had many in its short history.
With a few exceptions, the sector has been riding strong demand for consumer products from cell phones to personal computers. Stock prices have largely been on the rise since manufacturers and equipment makers cleaned up an inventory glut that drove stocks down in 2004.
Indeed, the fund’s returns have been impressive. From its inception on June 23, 2005, through its all-time high on April 7, the fund posted a 37.5% return. Monday’s dip dropped that number to 32%.
Year-to-date, PSI’s market return of 20.5% was more than 16 percentage points better than the S&P 500. And through the end of March, PSI’s 19.4% NAV return beat Morningstar’s Specialty-Technology average by nearly 11 percentage points, placing it among the top 1% of the category.
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The fund also shot up the Sector Momentum Table, jumping three spots to No. 4 last week and gaining 11 spots in three weeks.
One reason the fund has done so well in the early going relates to the model of its underlying index. Because of that model, PSI is one of the few semiconductor funds that don’t include Intel, the largest chipmaker. The company has struggled with competition, cut some of its prices, and twice lowered its earnings forecast. The result? Intel stock is down 22.4% year-to-date. Most indices, including SOX, are market cap-weighted; often, that means Intel is the No. 1 holding.
In contrast, PSI’s top holding is NVIDIA, which makes graphics chips for all sorts of popular products, from handsets to PCs. Demand and victories over its competitors have fueled a run on NVIDIA’s stock, which has jumped 64.1% in 2006 (through April 10) and more than 160% in the last year. In March, NVIDIA completed a two-for-one stock split.
PSI tracks the Semiconductors Intellidex index, created in June of last year by the American Stock Exchange.
The goal? Identify the stocks with the best chance to outperform and thereby beat the broader sector.
The model chooses chip-sector stocks from a universe of the 3,000 largest U.S. stocks by market cap, narrowing the list to 30 through an evaluation process that considers fundamental growth, market momentum, valuations, and risk factors.
Are you using PowerShares to advance your portfolio? Visit the Fidelity Advisor website to subscribe.