Semiconductor ETFs are now large enough to destabilize the entire US market:
US leveraged ETF assets under management (AUM) hit a record $198 billion, according to Nomura, with some data showing it exceeds $200 billion.
The vast majority of this exposure is concentrated in technology, led by semiconductor ETFs.
As a result, the market impact of leveraged semiconductor ETF rebalancing has surged from ~$2 billion per 1% move in the S&P 500 in 205 to nearly $10 billion today, almost 5 TIMES larger in just 12 months.
In other words, for every 1% move in the market, leveraged semiconductor ETFs are now mechanically forced to buy or sell ~$10 billion of underlying stocks near the end of each trading day.
Meanwhile, the 3x leveraged semiconductor ETF, , alone now holds a record ~$35 billion in assets.
And because targets 3x daily returns, even a modest pullback in semis can quickly turn into a 20% to 30% drawdown, while a disorderly unwind could be far worse.
Put simply, the bigger these funds become, the more they can amplify both rallies and selloffs, mechanically buying into strength and selling into weakness.
The semiconductor trade has never been more leveraged, crowded and fragile.
US leveraged ETF assets under management (AUM) hit a record $198 billion, according to Nomura, with some data showing it exceeds $200 billion.
The vast majority of this exposure is concentrated in technology, led by semiconductor ETFs.
As a result, the market impact of leveraged semiconductor ETF rebalancing has surged from ~$2 billion per 1% move in the S&P 500 in 205 to nearly $10 billion today, almost 5 TIMES larger in just 12 months.
In other words, for every 1% move in the market, leveraged semiconductor ETFs are now mechanically forced to buy or sell ~$10 billion of underlying stocks near the end of each trading day.
Meanwhile, the 3x leveraged semiconductor ETF, , alone now holds a record ~$35 billion in assets.
And because targets 3x daily returns, even a modest pullback in semis can quickly turn into a 20% to 30% drawdown, while a disorderly unwind could be far worse.
Put simply, the bigger these funds become, the more they can amplify both rallies and selloffs, mechanically buying into strength and selling into weakness.
The semiconductor trade has never been more leveraged, crowded and fragile.