Five ETFs For a Semiconductor Breakout

Investors in the semiconductor industry haven't had a whole heck of lot to cheer about lately. In fact, since semis tend to lead the way for tech, many Nasdaq bulls are still wondering whether greater upside movement is in the works.

There's certainly some evidence that semiconductor stocks are stepping up their game. The last 3 month's have witnessed 10%+ for the Powershares Dynamic Semiconductor Index (PSI). The same can be said for the Merrill Lynch Semiconductor HOLDRs (SMH).

Technical evidence also supports a breakout for the chip sector. Both SMH and PSI have held steady above their 200-day moving average. Each is above its shorter-term moving average (50-day) as well. [click to enlarge]

Yet many industry-watchers remain unconvinced. They argue that there's a glut of supply and a dearth of demand. And that could mean a longer dry spell for the semi segment.

That said, if one is inclined to believe that semis are finally stepping it up, here are 5 choices in the exchange-traded fund universe:

iShares Goldman Sachs Semiconductor Index (IGW)
Merrill Lynch Semiconductor HOLDRs (SMH)
Powershares Dynamic Semiconductor Index (PSI)
SPDR S&P Semiconductor Index (XSD)
Ultra Semiconductor ProShares (USD)

While all of the names share similar titles, there are important distinctions a prospective investor should note. First and foremost, IGW and SMH are primarily geared to the largest semi companies. If you believe in Intel (INTC) and Applied Materials (AMAT), then you'd be a large-cap semi fan. (Note: IGW is more diversified across the large-cap semi space, whereas 80% of the movement of SMH belongs to Intel, Applied Materials and Texas Instruments (TXN).)

If you are more inclined to diversify across the entire industry -- large, medium and small companies -- than PSI or XSD should be your focus. Personally, I'd favor PSI due to the larger volume. XSD suffers from negligible interest in the investment. (When you're the last one to the table...)

Finally, those of you who are ultra-bold, ultra-aggressive, ultra-hyped or even ultra-crazed, you may choose to leverage your interest in the semiconductor world. USD seeks to track the price and yield performance, before fees and expenses, which correspond to the 2x the daily performance of the Dow Jones U.S. Semiconductor Index. Note: USD was up nearly 18% over the last 12 weeks, but is seeing nearly a 3% drawdown today alone!)

Disclosure statement: Some of Pacific Park’s investment clients may hold positions in any of the investments mentioned above.