Man looking at data on a computer
Source: istock

SOXX Versus SOXL Semiconductor ETF Forecast: Which Is a Better Buy?

Mohit Oberoi, CFA - Author

May 25 2021, Published 10:59 a.m. ET

The global semiconductor shortage has hurt many industries, especially the automotive sector. However, it has also been a boon for some semiconductor companies. The iShares PHLX Semiconductor ETF (SOXX) and the Direxion Daily Semiconductor Bull 3X Shares (SOXL) are two of the ETFs that give you exposure to the sector. What’s the forecast for these two ETFs and which one of them is a better buy?

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The global semiconductor shortage is expected to persist before new capacity comes online. The sector’s medium-term outlook is strong due to high chip demand from different industries.

The Direxion Daily Semiconductor Bull 3X Shares ETF

The Direxion Daily Semiconductor Bull 3X Shares is a leveraged ETF. It provides returns that are 3x the underlying index on a daily basis. It's worth noting that leveraged ETFs are a double-edged sword. The ETF has outperformed over the last year due to the upwards price action in semiconductor stocks. However, if the tide turns for the semiconductor industry, the ETF would see significant losses.

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The iShares PHLX Semiconductor ETF

Currently, the iShares PHLX Semiconductor ETF tracks the PHLX SOX Semiconductor Sector Index. However, beginning on June 21, it will start tracking the ICE Semiconductor Index. The name of the ETF will also change to the iShares Semiconductor ETF. However, it will still be a plain ETF, unlike the leveraged SOXL.

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SOXX versus SOXL ETF dividends

SOXX and SOXL both pay dividends to investors. SOXX last paid a dividend of $0.755 in March, while SOXL paid a dividend of $0.01620 in that month. While the dividends paid by SOXX have been somewhat consistent, there's a massive divergence in SOXL's quarterly dividends.

SOXL versus SOXX ETF forecast

Semiconductor stocks have been strong over the last year. As a result, the leveraged SOXL ETF has delivered almost 325 percent returns in the one year ending April 2021. SOXX has delivered around 82 percent returns over the period. Also, SOXL has been outperforming SOXX in the last three-year, five-year, and ten-year periods.

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soxl has outperformed soxx
Source: TIKR

SOXL has outperformed SOXX

We have been in a semiconductor bull market over the last several years. As a result, SOXL, which is a leveraged bet on the industry, has outperformed. The medium-term outlook for the semiconductor industry also looks strong. The forecast for both of the ETFs looks positive.

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However, the semiconductor industry is cyclical in nature. There are fears that the industry might reach its cyclical peak soon even though new capacity will come online over the next few years.

SOXX versus SOXL holdings

Nvidia, Texas Instruments, Broadcom, Qualcomm, and Intel are SOXL's top-five stock holdings. These five are SOXX's top-five holdings as well.

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Should I buy SOXL or SOXX ETF?

If you want a leveraged bet on the semiconductor sector, you can opt for the SOXL ETF. However, if you are a risk-averse investor and want a passive long-term allocation to the semiconductor industry, SOXX will fit the bill. SOXL has an expense ratio of 0.99 percent, which is over twice what SOXX charges. Leveraged ETFs tend to have a higher expense ratio than plain ETFs.

Where to buy SOXX and SOXL

You can buy ETFs like SOXX and SOXL through any broker. You can also trade in ETFs on the Robinhood platform.


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