In March, Eurex launched futures on the STOXX® Semiconductor 30 index, offering investors liquid exposure to an economic sector that’s led market returns in the last couple of years.
The STOXX Semiconductor 30 index is comprised of US-listed securities issued by companies worldwide classified within the Semiconductors and Production Technology Equipment ICB Subsectors. The stocks are ranked by free-float market capitalization and the top 30 make it into the index.[1]
We recently sat down with Mezhgan Qabool, Head of Business Development and Sales for APAC and the Middle East at Eurex, to find out more about the new product offering.
Mezhgan, let’s start with the targeted sector itself: why semiconductors?
“The semiconductor industry has gained increasing interest during the past years, particularly because of its very strong growth outlook. Gartner predicts chipmakers’ revenue will grow 17% to USD 624 billion in 2024,[2] while McKinsey has forecast sales may reach USD 1 trillion by 2030.[3] Generative artificial intelligence (AI) is a major driver, with increasing demand for high-performance AI chips for data centers and personal devices, as well as across the legal, healthcare and financial-services industries, and the public sector.
The automotive sector, meanwhile, remains a key growth area, particularly with the rise of Advanced Driver Assistance Systems (ADAS) and infotainment. This segment is projected to grow steadily, fueled by the trends of automotive intelligence and electrification.
From a geopolitical standpoint, semiconductors are essential for the defense, communications and technology sectors globally. This has prompted nations to reassess their dependence on foreign suppliers and prioritize the secure production and control of semiconductors more than before.
Given all this, and as investors seek more exposure to the largest semiconductor companies, Eurex has launched the STOXX Semiconductor 30 futures together with STOXX. This was particularly driven by demand from our clients in Asia, but it has quickly become equally relevant for our client base in the US and Europe.”
What do the futures bring for investors?
“The product provides exposure to this sought-after sector via a liquid instrument with all the advantages of a standardized contract on a centrally cleared marketplace that offers margin offsets based on a portfolio-based risk system. The futures are ideal as complementary strategies with existing products or ETFs, as well as for portfolio management and hedging needs.
The contracts trade around the clock: from 8 a.m. Hong Kong time to 10 p.m. Central European time.
We have active liquidity providers showing prices on screen and offering block trades.”
You mentioned that demand for this strategy started in Asia; is it coming from any specific type of investor?
“Given the global and geopolitical intricacies, and that the global semiconductor production system is integrated and not easy to disentangle, we envisage the relevance of this product to cut across our investor base.
Generally, demand for semiconductors in financial markets is being driven by several key investor groups, particularly those focused on AI, cloud computing and advanced technologies. Major players also include hyperscalers who are heavily investing in AI servers to support their data centers.
Moreover, semiconductor stocks have seen substantial interest from institutional investors and analysts who highlight chip companies as top picks for 2024. Additionally, the cyclical nature of the semiconductor industry is seeing a positive shift, with global sales increasing and the market projected to grow significantly in the coming years.”
How do the futures complement Eurex’s existing sector-focused derivatives offering?
“Strategically the product fits well with the goal to increase our offering in themes and sectors, leveraging innovative index-based solutions.
Eurex already has an established offering of sector futures and options including STOXX Europe 600 sector futures, EURO STOXX Banks futures and EURO STOXX sector index derivatives. These continue to receive increased orders as investors look to diversify their portfolios.
The new semiconductor futures, which had their first trades put through in June, are a complement to that existing and expanding sector portfolio at Eurex, and we envisage investors increasingly adopting the futures into their portfolios.”
Why did you select the STOXX Semiconductor 30 Index specifically as the underlying for the new product?
“Driven by client demand, Eurex and STOXX worked closely on creating a product that would provide pure exposure to the semiconductors theme. We think this is an efficient alternative to buying technology-sector or country indices, or single stocks. Moreover, STOXX is a leader in sector and thematic strategies.
The top components in the index reads like a list of industry bellwethers: TSMC, Broadcom, ASML, Nvidia, Advanced Micro Devices, Micron, Analog Devices, Qualcomm, Texas Instruments, Applied Material. So, a comprehensive and geographically-diversified portfolio that reflects the current global state of the industry.
We designed the futures contracts with the needs of our investors in mind. That includes USD denomination and smaller contracts in size. The underlying includes more Asian companies and weightings than you would find in other products in the market.
We have a long-established relationship with STOXX and will continue to further grow the liquidity in the product together as well as innovate new sector solutions for our clients.”
[1] Constituents in the index are weighted by size, with a single-stock cap at the time of reweighting of 8% and a 45% combined weight limit for companies with an individual weight of over 4.5%.
[2] Gartner, “Gartner Forecasts Worldwide Semiconductor Revenue to Grow 17% in 2024,” Dec. 4, 2023.
[3] McKinsey, “The semiconductor decade: A trillion-dollar industry,” April 1, 2022.