The worst day for chipmakers in seven weeks hit a far-flung corner of the bond market where the industry is a favorite.
The biggest decliner among U.S. exchange-traded fixed-income funds was the iShares Convertible Bond ETF (ICVT) which fell 2.2% Monday to its lowest since February. The ETF tracks U.S.-dollar denominated convertible bonds, a type of debt many fast-growing tech firms — including chipmakers — rely on for cheap financing.
The $279 million fund has its heaviest weighting in the semiconductor industry, with debt issued by firms such as Intel and Microchip Technology making up 17.9% of its portfolio. Internet companies come next, with a 15.8% weighting.
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Convertible bonds can be sensitive to stock prices, as the securities turn into equity as long as the shares are trading above a conversion price at maturity. In fact, the price of the iShares ETF has closely tracked the performance of the S&P 500 Information Technology Index this year, though a slew of investors still buy the bonds even if they don’t expect to receive shares at maturity.
While outpacing the S&P 500, the price tag is higher — the average expense ratio is more than 1%.
Semiconductor firms fell 4.4% Monday, their worst performance since Feb. 8, after a report that Apple plans to start using its own chips rather than processors made by Intel as soon as 2020.
