A Simple Rule for the Semiconductor ETF: Buy After a 15% Drop. Here's How It Has Done Since 2012.
Key PointsBuying the chip fund after a 15% drop from a record left investors up a year later in seven of eight cases since 2012.
The VanEck Semiconductor ETF (SMH) reached an all-time high of $668.91 on June 22. Four weeks later on July 17, it fell to $556.53, marking its first close at least 15% below its peak. This decline triggered a simple rule: buy the fund on the first day it closes 15% or more below a record, and hold it for a year. The rule was tested against daily closing prices of the fund since the beginning of 2012, with eight signals triggering the rule and seven resulting in a gain over the next year.
The gains varied, with the best being around 89% from a March 2020 signal and the lowest being about 22% from a July 2024 signal. However, the rule was not always accurate in predicting the lowest point. In five out of eight cases, the fund dropped around 10% or more below the signal price before starting to rise. The only loss came from the January 2022 signal, with the fund falling around 10% over the following year, though it still ended the year up around 22%.
The July 2024 signal, while resulting in a gain, also saw the fund drop about 24% by April 2025. The Federal Reserve's interest rate hikes and cooling demand for chips are cited as factors that could affect the semiconductor industry. Despite this, global semiconductor sales in August reached $159.7 billion, up 144% year over year, indicating a strong market.
Buying and holding the fund for a year since 2012 would have yielded a median gain of about 29%, with the rule adding a reason to buy during difficult market conditions and warning of potential future declines. The July 2024 signal is seen as a potential buying opportunity, but not a guaranteed quick gain, given the rule's mixed track record.
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