The semiconductor (or chip) stock group has strong long-term growth potential, largely driven by robust adoption of artificial intelligence (AI) across sectors. According to Statista, the global AI market is expected to grow at a robust compound annual growth rate (CAGR) of more than 28% between 2024 and 2030.
Over the long term, there will likely be some big stock winners in the chip sector. But picking individual stocks in fast-moving technology areas can be challenging. So some investors might want to invest in a basket of semiconductor stocks. One way to do this is to buy an Exchange Traded Fund (ETF). ETFs are bought and sold like stocks, but their diversification makes them less risky than individual stocks.
Two top-performing semiconductor ETFs
Most investors should stick with a semiconductor ETF with a decent trading history. It’s good to see how an ETF has held up in a down market, like in 2022. So to qualify for this article, a semiconductor ETF had to have at least a three-year trading history. Five ETFs remained. A look at the short-, medium- and longer-term performance of these ETFs revealed one that stood out: VanEck Semiconductor ETF (NASDAQ: SMH). It was the best performer in all periods examined.
Another ETF that seems worthy of your investment dollars is iShares Semiconductor ETF (NASDAQ: SOXX). It was the number 2 artist in the various time periods examined. It has the same reasonable expense ratio as the VanEck ETF, 0.35%.
Past performance is not indicative of future performance. That said, investors should consider its long-term past performance when choosing an ETF. Past performance over time often partly reflects the success of the strategies of the companies whose shares are included in a particular ETF.
|
Semiconductor ETF/Index |
Return of the year so far 2024 |
1 year return |
5 year return |
10 year return |
|---|---|---|---|---|
|
VanEck Semiconductor ETF |
21.5% |
69.6% |
278% |
961% |
|
iShares Semiconductor ETF |
9.8% |
50.5% |
215% |
804% |
|
S&P500 |
5.7% |
22.9% |
88.2% |
225% |
Data source: YCharts. Data as of April 17, 2024.
VanEck Semiconductor ETF: overview
The VanEck Semiconductor ETF began trading in 2011 and has $17.7 billion in assets under management as of April 17. It is an index fund that aims to track the performance of stocks. MVIS American listed Semiconductor 25 index. This index consists of the “25 largest and most liquid U.S. publicly traded companies in the semiconductor industry.” (Liquidity refers to the average trading volume of a stock.)
The index on which this ETF is based places a heavy emphasis on a company’s size. But it limits the maximum weighting of all stocks in the portfolio to 20%. Currently, Nvidia is capped because it has reached a 20% weighting (just over 20%, to be precise).
VanEck Semiconductor ETF: Top 5 Stock Holdings
|
Company no. |
Company |
Market capitalization |
Weight (% of portfolio) |
5 year return |
|---|---|---|---|---|
|
1 |
Nvidia |
$2.1 trillion |
20.4% |
1,710% |
|
2 |
Taiwanese semiconductor manufacturing |
$721 billion |
12.5% |
258% |
|
3 |
Broadcom |
$595 billion |
7.9% |
370% |
|
4 |
ASML Holding |
$358 billion |
5% |
371% |
|
5 |
Micron technology |
$129 billion |
4.7% |
174% |
|
Top 5 total |
N/A |
N/A |
50.5% |
N/A |
Data sources: VanEck Semiconductor ETF and YCharts. Portfolio weightings as of April 16, 2024. All other data as of April 17, 2024.
Nvidia, Broadcom and Micron are categorized as chipmakers, although they also have varying levels of software and service offerings. Nvidia’s GPU (graphics processing unit) chips are the chips of choice for accelerating the processing of artificial intelligence workloads in data centers. Broadcom is known as the leading designer of custom AI chips. Micron is a major player in the field of memory chips.
Taiwan Semiconductor Manufacturing (TSM) is the world’s largest contract manufacturer of chips. ASML makes equipment for the production of chips.
iShares Semiconductor ETF: Overview
The iShares Semiconductor ETF began trading in 2001 and has $12.2 billion in assets under management as of April 17. It is an index fund designed to track the performance of the NYSE Semiconductor Index. This index consists of twenty global companies, all listed on a major American stock exchange, that are active in the semiconductor sector.
A key difference between the iShares Semiconductor ETF and the VanEck Semiconductor ETF has to do with the weighting of stocks in their portfolios. The weights of the VanEck offering are highly correlated with a company’s market capitalization, while the weights of the iShares ETF are much less. This means that the VanEck ETF is more concentrated. The top five investments together account for just over 50% of the portfolio’s assets, while for the iShares ETF this is 36%.
iShares Semiconductor ETF: Top 5 Stock Holdings
|
Company no. |
Company |
Market capitalization |
Weight (% of portfolio) |
5 year return |
|---|---|---|---|---|
|
1 |
Nvidia |
$2.1 trillion |
8.9% |
1,710% |
|
2 |
Broadcom |
$595 billion |
8.2% |
370% |
|
3 |
Advanced micro devices |
$249 billion |
6.8% |
460% |
|
4 |
Qualcomm |
$183 billion |
6.7% |
135% |
|
5 |
Micron technology |
$129 billion |
5.4% |
174% |
|
Top 5 total |
N/A |
N/A |
36% |
N/A |
Data sources: iShares Semiconductor ETF and YCharts. Portfolio weightings as of April 16, 2024. All other data as of April 17, 2024.
The top five of these ETFs are all chipmakers. Three of the five have been discussed previously. Advanced Micro Devices (AMD) makes central processing units (CPUs) and GPUs, while Qualcomm focuses on chips for wireless connectivity.
Which of the two featured semiconductor ETFs is best?
Both ETFs mentioned in this article are a good way for investors to gain exposure to the semiconductor space. That said, the VanEck Semiconductor ETF is more concentrated. For investors who strongly prefer investing in the largest chip companies, this would be a positive. However, this high level of concentration increases the level of risk compared to the iShares Semiconductor ETF.
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Beth McKenna has positions at Nvidia. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, and iShares Trust-iShares Semiconductor ETF. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
The 2 Best Semiconductor ETFs to Buy Right Now as the Artificial Intelligence (AI) Revolution Boosts Chip Demand was originally published by The Motley Fool
