SOXL: When Expected Semiconductor Returns Are Not Worth The Risk

Financial Serenity 1.76K Followers Follow Summary Direxion Daily Semiconductor Bull 3X ETF offers leveraged exposure to semiconductors but suffers from volatility decay over multiday periods. In my opinion, forward earnings yields of roughly 4% for the semiconductor sector do not adequately compensate investors for the drawdown risk inherent to holding leveraged funds. I believe that a safer entry point requires higher earnings yields and is aligned with key technical support levels. SOXL's realized volatility can exceed 90%, making it suitable only for tactical, intraday trades or after significant sector corrections. Getty Images Semiconductors have given up ground, but growth prospects remain at record levels. And the question I ask myself is: if expected returns remain positive for the sector, why not take advantage of the dips in the Direxion Daily Semiconductor This article was written by Financial Serenity 1.76K Followers Follow Financial Serenity is a quantitative research column specialized in ETFs. We analyze all ETFs to understand which ones hide traps and which ones deserve attention. The ultimate goal, however, is the product of this selection process: an ETF portfolio capable of maintaining linear price growth (at least indexed to the inflation rate) while generating sustainable, recurring income streams. The analytical key is therefore portfolio construction, asset allocation, and the application of proprietary strategies for average purchase cost management. Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article. The author expresses only personal opinions and does not provide financial advice. The content is for informational purposes only and should not be considered as investment recommendations. The author assumes no responsibility for any investment decisions made based on this article. Always conduct your own research or consult with a financial advisor before making any investment choices. The author makes no guarantees regarding the data, and the user agrees that the author shall not be held liable for the user's use of the data. Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.