Fidelity Select Semiconductors Portfolio FSELX is up 49% this year. It has returned 24% and 21% annualized, respectively over the past 3 year and 5 year periods. What is driving semiconductor stocks? How is the Fidelity Select Semiconductors fund positioned? What is the outlook for FSELX? Is FSELX a buy, sell or hold?
The semiconductor industry is cyclical.
Semiconductor chip makers have trouble keeping up with demand, when end markets are booming.
However, when the supply of semiconductor chips exceeds demand, chip prices fall.
The demand for semiconductor chips has been in decline for some time.
Data from the Semiconductor Industry Association show worldwide monthly sales of semiconductor chips peaked at $42 billion in October 2018.
The decline in sales appears to have stopped after sales fell to $32 billion in April 2019.
Worldwide semiconductor sales have ranged between $32 billion and $34 billion per month since April.
How is the $3.3 billion Fidelity Select Semiconductors Portfolio FSELX faring in this milieu and positioned for the future?
Fidelity Select Semiconductors Portfolio Performance
Fidelity Select Semiconductors Portfolio has posted impressive historical returns and outperformed the S&P 500.
As of November 1, 2019, the semiconductor fund has delivered a compound annual return of 24% and 21% for the 3-year and 5-year periods, respectively.
The ride has however been volatile.
Fidelity Select Semiconductors Portfolio followed the steep decline in semiconductor chipmaker shares in the fourth quarter of 2018 and lost 17%.
The semiconductor mutual fund has recouped all these losses in 2019 and tacked on some gains.
As of November 1, the Fidelity semiconductor fund is up 49% for the year.
Semiconductor shares have bucked the year-over-year decline on global semiconductor sales in 2019 and rallied on the premise that worldwide semiconductor sales are bottoming and poised to grow again.
U. S.-China trade negotiations have also contributed to volatility in Fidelity Select Semiconductors Portfolio.
The semiconductor fund lost 18% in May alone when talks between the U. S. and China stalled.
In recent weeks, semiconductor company shares have risen on optimism over the U. S. and China agreeing to the first phase of a trade deal.
This has helped the Fidelity Select Semiconductors fund to recently set a new all-time high.
Fidelity Select Semiconductors Portfolio Holdings
Fidelity Select Semiconductors fund divides its assets mainly between semiconductor chipmakers and semiconductor capital equipment manufacturers.
As of September 30, 2019, Fidelity Select Semiconductors Portfolio held broadline semiconductor chipmakers Intel and Broadcom, communication chipmakers Qualcomm and Marvell Technology Group, and memory chipmaker Micron Technologies among its top five holdings. Lam Research is the only semiconductor capital equipment manufacturer to figure among the fund’s top 10 holdings.
The Fidelity semiconductor fund had invested 76% of its assets in semiconductor chipmakers. Nearly 10% of the fund’s assets were invested in semiconductor capital equipment manufacturers.
Fidelity Select Semiconductors Fund Expense Ratio
Fidelity Select Semiconductors Fund has an expense ratio of 0.73%. This compares favorably with the limited assortment of semiconductor-industry focused mutual funds available. Rydex Electronics Fund and the leveraged Semiconductor UltraSector ProFund both have an expense ratio nearly twice as much.
Fidelity Select Semiconductor fund’s expense ratio is also reasonably competitive with semiconductor-industry focused exchange-traded funds. The expense ratio for such ETFs ranges between 0.35% and 0.60%.
What is ahead for Fidelity Select Semiconductors Portfolio?
Semiconductors are the enabler of products used in communication, entertainment, computation, and data storage & analysis.
The information technology revolution that drives demand for semiconductors still has a long way to go.
As the manager of Fidelity Select Semiconductors fund, Steve Barwikowski explains, “The combination of pervasive data, powerful new computing architecture, and software frameworks and analytics tools has supported a virtuous cycle for the continued growth of cloud computing and, in turn, of semiconductors. This demand will soon be augmented, as 5G – the next generation of wireless network infrastructure – becomes a reality, again driving an increasingly connected world, facilitated by semiconductors.”
The next generation of wireless network technology or 5G should improve the capabilities of emerging technologies including cloud computing, artificial intelligence, the Internet of Things, and virtual reality.
Semiconductor companies and Fidelity Select Semiconductors Portfolio, in turn, should benefit as 5G wireless networking in combination with artificial intelligence, cloud computing, the Internet of Things, and virtual reality push demand for semiconductor chips.
Supporting this thesis, industry experts at PwC expect global semiconductor industry sales to rise from $480 billion in 2018 and approach $575 billion in 2023.
Is the Fidelity Select Semiconductors Fund a Buy, Sell or Hold?
Investors who own the Fidelity Select Semiconductors fund can continue to hold them. The FSELX fund is also a worthwhile idea for short-term traders to consider.
Long-term investors looking for targeted semiconductor industry exposure are likely to be better off waiting for Fidelity Select Semiconductors fund to pull back from its all-time high and create a buying opportunity.