Chip shortage proving to be a boon for equity investors

The global semiconductor shortage is turning into a headache for automotive (auto) and appliance manufacturers.

But it is proving to be a boon for equity investors.

Semiconductor stocks are among the best performers this year.

The PHLX Semiconductor Index has gained more than 35 per cent year-to-date.

Amid positive sentiment towards chip companies, mutual funds (MFs) have lined up overseas funds that provide easy exposure to companies in the semiconductor ecosystem.

Tata MF has filed an offer document with markets regulator Securities and Exchange Board of India (Sebi) to launch Tata Global Semiconductor Fund of Fund.

Nippon India has launched India’s first Taiwanese equity fund in partnership with Taiwanese asset manager Cathay Securities Investment Trust (SITE).

Taiwan is a global player in the semiconductor and electronics industry.

The scheme Tata MF is looking to launch will invest in iShares Semiconductor Exchange-Traded Fund (ETF), iShares MSCI Global Semiconductors UCITS ETF, VanEck Semiconductor ETF, SPDR S&P Semiconductor ETF, and Fidelity Select Semiconductors Fund.

Semiconductors or chips are the brains of modern electronics, enabling advances in medical devices and health care, communications, computing, clean energy, and technologies of the future, such as artificial intelligence, quantum computing, and advanced wireless networks.

Global semiconductor demand continues to grow and is further driven by the increased pace of digitalisation.

“The demand for chips is outstripping supply. The production of many auto manufacturers and consumer electronics companies across the world will be affected.

"While the semiconductor shortage appears to be a challenge, it also brings in an opportunity.

"Many technology (tech) companies have begun developing their ownerships,” said Andy Chang, president and chief executive officer, Cathay SITE.

Taiwan’s economy and markets are largely based on the semiconductor and electronics industries, which have a wide and diversified use.

Taiwan’s dominance can be attributed to Taiwan Semiconductor Manufacturing Company (TSMC) — the world’s largest foundry that counts major tech firms as its clients.

TSMC accounts for more than half of the world’s semiconductor foundry market.

Taiwan has 52 per cent market share in semiconductor contract manufacturing.

While the idea of investing in the semiconductor sector looks appealing, investment experts say these funds should be a small part of the portfolio.

“Semiconductor stocks have already rallied sharply this year.

"They can still be good long-term bets. In a tech-driven world, chips will be at the core.

"However, investors should ideally have only 5-10 per cent portfolio allocation towards thematic funds,” said an investment advisor.

Photograph: Jason Lee/Reuters