The ticker symbols SOXL and SOXS are both semiconductor ETFs issued by Direxion.
Exchange-traded funds (ETFs) are investment funds that hold a basket of stocks.
In this case, both SOXL and SOXS hold semiconductor-related stocks selected by a fund manager at Direxion.
The holdings are not a secret; they can be viewed on various platforms, including barchart.com.
Contents
SOXL Semiconductor Bull
Without needing to log in, I can simply go to the “Constituents” section of SOXL and see that the majority of the fund’s holdings are in the ICE Semiconductor Index Swap.
Source: Barchart
An index swap is a derivative contract between two parties.
The ICE Semiconductor Index (ICESEMIT) is a stock market index maintained by Intercontinental Exchange that tracks the performance of leading U.S.-listed semiconductor companies.
The fund also owns individual stocks, with AMD and NVDA being the top two stock holdings at present, representing 6.85% and 6.01% of the fund, respectively.
Because the name of this fund is “Semiconductor Bull 3X”, the stocks in this fund are those that the manager believes are performing well and outperforming the market.
They are bullish stocks expected to rise in price.
Scrolling through the list, there are approximately 30 stocks.
If you were looking for bullish semiconductor stocks yourself, this might be a list to find trade ideas.
One of the advantages of an ETF is diversification, as it holds a variety of stocks, as opposed to buying a single ticker symbol that trades like a stock.
This avoids individual stock risk, such as a bad earnings report on one stock, among others.
SOXS 3X inverse ETF
The SOXS is the “Semiconductor Bear 3X” ETF, designed to increase in value when semiconductor stocks decline.
This is for the investor who is bearish on semiconductors and believes there will be a decline in semiconductor stock prices.
That investor might want to capitalize on that decline by buying the SOXS, as opposed to shorting individual stocks outright.
SOXS is known as an inverse ETF because SOXS moves in the opposite direction as the underlying assets.
According to the Direxion site, it holds negative shares of the ICE Semiconductor Index Swap.
Effectively, the fund is shorting (or selling) the ICE Semiconductor Index.
Source: Direxion
As the semiconductor index drops in price, the SOXS will go up in price.
And vice versa.
3X Leveraged
It is important to note that there is a “3X” in the names of both SOXL and SOXS.
That means that they are three times leveraged ETFs.
SOXL is designed to deliver three times the daily performance of the ICE Semiconductor Index.
If the index increases by 1% in a day, SOXL is designed to increase by three percentage points.
If the index declines by 1%, SOXL may decline by 3%.
SOXS is the inverse. If the index declines by 1% in a day, SOXS is designed to increase by 3%. If the index increases by 1%, SOXS may decrease by 3%.
Summary
SOXL and SOXS are semiconductor ETFs.
The one with the trailing “L” at the end of its ticker symbol is “long” semiconductors (bullish).
The one with the trailing “S” is “short” semiconductors (bearish).
And they are both three times leveraged.
Frequently Asked Questions
Why is the SOXL (red line) underperforming the ICESEMIT (blue line)?
Source: TradingView
This is due to the daily reset, compounding decay, volatility drag, expense ratio, derivative costs, and tracking error of trying to maintain a 3X leveraged ETF.
Can I Buy The ICESEMIT Instead?
No, because the ICE Semiconductor Index is an index and not an ETF or stock.
You can not buy shares of an index.
Both SOXL (red line) and SOXS (purple line) are down; how can that be?
That is because the index was flat.
The maintenance operational drag previously mentioned of the leverage ETFs is dragging down the prices of the ETFs.
It is for this reason that SOXL and SOXS are not intended for long-term holding, as shown in the years depicted in the chart above.
It is more commonly used for short-term trading.
Over a shorter period of one to two months, you can see the divergence of the two funds where traders who were bullish on semiconductors outperformed those who were bearish:
We hope you enjoyed this article on the differences between the semiconductor ETFs SOXL and SOXS.
If you have any questions, send an email or leave a comment below.
Trade safe!
Disclaimer: The information above is for educational purposes only and should not be treated as investment advice. The strategy presented would not be suitable for investors who are not familiar with exchange traded options. Any readers interested in this strategy should do their own research and seek advice from a licensed financial adviser.
