Different areas of tech take their turn ruling the current innovation. But semiconductors are back at the heart of tech's big thing right now: AI.
No matter how AI ultimately pans out, investors seem pretty sure semiconductors will be the big winner. Shares of the top 10 largest semiconductor ETFs are up 71% this year on average. That not only blows away the S&P 500's 20% rise. Semi stocks are also trouncing software stocks, which are often the winners during tech booms. The iShares Expanded Tech-Software Sector ETF is up just 9.5% this year.
Such outperformance of chip stocks is leading some investors to wonder if their exposure in the S&P 500 to the industry is enough. And semiconductor ETFs are a popular way to add more chip names to portfolios.
"Some people may want more, and there are industry-focused ETFs to consider," said Todd Rosenbluth, director of research at TMX VettaFi.
Amazing Semiconductor Runs
The largest semiconductor ETF, the $23-billion-in-assets VanEck Semiconductor ETF, is up 40.1% just this year.
And digging into its positions shows why. The largest stake, at nearly 20% of the ETF's value, is runaway chip winner Nvidia. Shares of the designer of chips used in AI are up roughly 150% — just this year. That brings their 10-year gain to an astounding 26,590%.
And the ETF's second-largest position, at nearly 13% of the portfolio, is Taiwan Semiconductor Manufacturing. Shares of the chip company are up more than 75% this year.
These top positions aren't represented anywhere as highly in the S&P 500, though. Nvidia only carries a 6% weighting in the S&P 500. And Taiwan Semiconductor isn't in the S&P 500 at all.
So if you'd like to make a bigger bet on chips, these ETFs fit the bill. But how to choose?
Picking A Semiconductor ETF
Many investors will opt for the largest semiconductor ETF: VanEck Semiconductor. The ETF is highly concentrated in just 26 stocks, Rosenbluth says. And it charges just 0.35% annually. That's less than the 0.71% average expense ratio of the top 10 largest semiconductor ETFs.
Investors looking to distribute their bets more widely may consider the SPDR S&P Semiconductor ETF, Rosenbluth says. The $1.3-billion-in-assets ETF spreads its assets across 40 semiconductor stocks.
But more significantly, it weighs all the positions the same. This gives smaller semiconductor stocks more sway on the ETF's composition than with those based on market values. It's important to note, though, that a small-cap focus has hurt returns this year: The ETF is up just 3.7%. It also charges 0.35% annually.
"This year the equal-weighed approach has hurt relative performance as megacaps have led the charge," Rosenbluth said.
Going Beyond Semiconductors
It's also important to note that semiconductor companies often wind up in background roles as technology matures.
Chipmaker Intel stood alongside software giant Microsoft during the desktop computing boom of the 1990s. Eventually, Intel's role faded along with its stock. Now the former chip giant is rumored to be a buyout target.
To protect against such a shift, investors might think about an ETF that targets AI, not just chipmakers. The Global X Artificial Intelligence ETF and ROBO Global Artificial Intelligence ETF take such a broader approach.
That makes them an option for investors who "believe in the long-term trend of AI and want exposure to the broader ecosystem," Rosenbluth said.
Largest Semiconductor ETFs
Most are enjoying a strong year so far
| ETF | Symbol | Assets (billions) | YTD change | Fee |
|---|---|---|---|---|
| VanEck Semiconductor | SMH | $23 | 40.1% | 0.35% |
| iShares Semiconductor | SOXX | 14.6 | 18.5% | 0.35% |
| Direxion Daily Semiconductor Bull 3X Shares | SOXL | 11.9 | 13.0% | 0.76% |
| GraniteShares 2x Long NVDA Daily | NVDL | 4.6 | 303.5% | 1.15% |
| First Trust Nasdaq Semiconductor | FTXL | 1.4 | 12.7% | 0.60% |
| SPDR S&P Semiconductor | XSD | 1.3 | 3.7% | 0.35% |
| ProShares Ultra Semiconductors | USD | 1.1 | 122.7% | 0.95% |
| Direxion Daily Semiconductor Bear 3X Shares | SOXS | 0.9 | -63.5% | 1.03% |
| Invesco Semiconductors | PSI | 0.7 | 13.2% | 0.56% |
| Direxion Daily NVDA Bull 2X Shares | NVDU | 0.5 | 247.2% | 1.04% |
