HEDGING SEMICONDUCTOR EXPOSURE IS GETTING HARDER
a 19-fold jump in Q2 profit is just the latest sign of how volatile semiconductor stocks have become.
Even the U.S. semiconductor index NASDAQ:SOX has seen swings of more than 2% for the past seven trading sessions — Tuesday could be an eighth.
That sort of volatility is not great news for real money investors, and UBS analysts say "semi-focused investors concerned that they might be facing 'more vol for less upside' have two choices, de-risk or diversify."
The problem is neither is especially easy.
UBS points out that as semi implied volatility rises, direct hedges that don't forgo some of the upside are becoming more difficult. Meanwhile, if you just want to diversify, the problem is that most of the main global indexes are now heavily exposed to semis.
They have a couple of suggestions for what investors could do.
On the hedging front, one option is to find a proxy with lower implied volatility, as that makes it cheaper to buy protection. Another is just to hedge against a broader U.S. market crash.
While correlations on the S&P 500 are around record lows, UBS says a broader AI-reversal could see markets re-couple.
Or you can diversify, though obviously there you lose on the potential upside.
With both the U.S. and Asia heavily exposed to tech, Europe is a good candidate. Just 7% of the STOXX 600 is tech hardware and semiconductors. UBS also says U.S. industrials and financials could be options.