The iShares Semiconductor ETF (SOXX) has gone parabolic since 2016,
as have other ETFs such as the Technology Select Sector SPDR ETF
(NYSEARCA:XLK) and the Vanguard Information Technology ETF (VGT). Intel
is the largest holding of SOXX so this means that BlackRock (the fund’s
sponsor) has been buying a lot of stock.
As have others. Multiple ETFs
have been buying Intel, but not because Intel’s fundamentals are
improving but because Semi-conductors are a hot sector and money is
flowing into the funds.
Recently CNBC’c Equities Research Analyst Richard X Bove said:
They analyze the companies they are considering investing in. They make decisions as to what they want to buy and when they want to buy it based on contact with multiple sources and after long internal discussions held internally. They adhere to the “Prudent Man” rules. They know what they want to buy and when they want to buy it because they have completed serious study on the subject.
This is not how investing is done in passive funds and ETFs. I call this blind money. Managers of these funds have created a mathematically driven method of investing. They have a fund indenture that sets the rules of what should be bought and computers are programmed to invest according to the “script.” There are no discussions concerning what to invest in. There is no time spent investigating the individual companies to be invested in.”
This would explain some of the recent price moves and moreover, if the investment causes the stocks targeted by the investment to rise, this triggers actions by others. You see the computers are programmed to react to movements in the stock price and volumes and then begin putting more money in. Active managers are then compelled to act in other words everyone chases the break out.
We think that this is not only applicable to Intel, but it does tell us that we cannot always assume price trends are necessarily linked to fundamental developments.
Recently CNBC’c Equities Research Analyst Richard X Bove said:
They analyze the companies they are considering investing in. They make decisions as to what they want to buy and when they want to buy it based on contact with multiple sources and after long internal discussions held internally. They adhere to the “Prudent Man” rules. They know what they want to buy and when they want to buy it because they have completed serious study on the subject.
This is not how investing is done in passive funds and ETFs. I call this blind money. Managers of these funds have created a mathematically driven method of investing. They have a fund indenture that sets the rules of what should be bought and computers are programmed to invest according to the “script.” There are no discussions concerning what to invest in. There is no time spent investigating the individual companies to be invested in.”
This would explain some of the recent price moves and moreover, if the investment causes the stocks targeted by the investment to rise, this triggers actions by others. You see the computers are programmed to react to movements in the stock price and volumes and then begin putting more money in. Active managers are then compelled to act in other words everyone chases the break out.
We think that this is not only applicable to Intel, but it does tell us that we cannot always assume price trends are necessarily linked to fundamental developments.
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