Semi ETFs' Fate Lies With the Consumer

Semiconductors have been no exception to the general market downturn, but some market experts expect growth to pick up in the next few months, barring a major consumer meltdown.

Year-to-date, the Dow Jones U.S. Semiconductor Index has fallen 21.3%, versus a 15.6% slide from the S&P 500. Semiconductor ETFs have suffered comparable pullbacks. The PowerShares Dynamic Semiconductors Fund(PSI Quote), the Semiconductor HOLDRs Fund(SMH Quote) and the SPDR S&P Semiconductor ETF(XSD Quote) have slid 12.9%, 13.2% and 15.6% respectively.

Top holdings in these funds include names such as Analog Devices(ADI Quote), Applied Materials(AMAT Quote), Broadcom(BRCM Quote), Intel(INTC Quote), NVIDIA(NVDA Quote) and Texas Instruments(TXN Quote).

Investors who have taken the other side of the semiconductor trade have raked in significant gains in recent weeks. The UltraShort Semiconductor Proshares Fund(SSG Quote) has been one of the top-performing ETFs over the past month, rising a staggering 21.3% in just the past 30 days. The fund is designed to return shareholders twice the inverse of the daily performance of the Dow Jones U.S. Semiconductor index.

The semiconductor industry as a whole has been feeling the drag of a global oversupply in the memory chip market. Fortunately, the Semiconductor Industry Association estimates that memory comprises only 20% of total semiconductor sales and maintains that the industry is otherwise sound.

Calmer seas may not be too far in the distance for semiconductors, but pressing uncertainties remain hovering over the industry.

"Barring any major changes in the macroeconomic environment, we are expecting typical, seasonality improvement in Q3 and Q4 for semiconductors," says Betsy Van Hees, a vice president and semiconductor analyst for Caris & Company.

She expects demand to pick up around August.