PHLX Semiconductor

The PHLX Semiconductor Sector Index (SOX) was introduced on the Philadelphia Stock Exchange on December 1, 1993. The Index had an initial value of 200. The SOX is a price-weighted index, which means that companies with higher stock prices have a greater influence on the Index. The SOX is composed of 19 companies involved in the design, distribution, manufacture, and sale of semiconductors. The Index was split two-for-one on July 24, 1995. Options on the Index were first traded on September 7, 1994.

The Semiconductor Index is traded on the Philadelphia Stock Exchange; investors use it to track the performance of semiconductor makers and equipment manufacturers. Since it tracks the cyclical semiconductor industry, the SOX tends to be highly volatile. Many technical traders have noted that a rise/decline in the SOX usually precedes a similar move in the broader technology markets. As such, the Semiconductor Index can serve as a fairly accurate leading indicator for technology stocks.

Numerous futures, options, and Exchange Traded Funds (ETFs) track the performance of the Semiconductor Index. One of the most popular investment tools is the Semiconductor HOLDR (SMH). Even though this ETF does not implicitly track the Semiconductor Index, it has shown a great correlation to it over the years. It is one of the most liquid ETFs and charges a minimal management fee. A drawback of the SMH is that it, like every other HOLDR, can only be traded in 100-share round lots. This puts the fund out of reach for many small investors.

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