Traders Dumped Levered Semiconductor Funds Just Before 24% Surge
(Bloomberg) — ETF investors exited bullish bets on semiconductors last week, just before the sector staged one of its sharpest one-day rebounds in months as Wall Street cheers a US-China trade truce.
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More than $340 million fled the Direxion Daily Semiconductors Bull 3x Shares (ticker SOXL), which offers triple-leveraged exposure to the industry, during the week ended Friday. That outflow — which marks SOXL's third straight week of money rushing out — came just ahead of a 24% surge for the fund on Monday. The VanEck Semiconductor fund (SMH) also saw roughly $485 million in outflows last week, the most since the end of January, data compiled by Bloomberg show.
The ill-timed withdrawals come as US and Chinese officials announced plans to reduce tariffs for 90 days to defuse economic tensions between the two countries. Now, traders are unleashing bullish wagers across sectors caught up in the trade fallout, sparking a dramatic turnaround in fast-money positioning.
Risk assets gained at the start of the week after US and Chinese representatives said that they would temporarily lower tariffs to de-escalate the trade war, with President Donald Trump adding that he'd likely speak with Chinese leader Xi Jinping later this week.
Deutsche Bank strategists said the announcements on tariffs were much better than they — and the market — had been expecting. The S&P 500 rose as much as 3.2% Monday, while the tech-heavy Nasdaq 100 added 4% at one point. The Philadelphia Semiconductor Index spiked 7.6%.
SOXL is one of a slew of leveraged ETFs that offer amplified exposure to popular investment themes, with Monday's sharp moves underscoring the risks and rewards inherent in the trading instrument.
Among the stocks driving SOXL is Taiwan Semiconductor Manufacturing Co., whose revenue rose 48% last month. Analysts said the firm — among others — rushed to acquire components before tariffs kicked in.
'Even though the monthly sales from Taiwan Semiconductor were good last week, a lot of investors thought it was just front-end loading before the tariffs set in. Yes, they knew the eventual tariffs would not be 145%, but they did not expect to see them fall this much so quickly,' said Matt Maley, chief market strategist at Miller Tabak + Co.
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