2 Best Semiconductor ETFs to Buy Now, as the Artificial Intelligence (AI) Revolution Powers Chip Demand – The Motley Fool
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The VanEck Semiconductor ETF and iShares Semiconductor ETF have been the best-performing semiconductor exchange-traded funds (ETFs) over the short and longer terms.
The semiconductor (or chip) stock group has strong long-term growth potential, driven in large part by the robust adoption of artificial intelligence (AI) across industries. The global AI market is projected to increase at a brisk compound annual growth rate (CAGR) of more than 28% from 2024 through 2030, according to Statista.
There are likely to be some huge stock winners in the chip space over the long term. But it can be very challenging to pick individual stocks in fast-evolving technology areas. So, some investors might want to invest in a basket of semiconductor stocks. One way to do so 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.
Most investors should stick with a semiconductor ETF that has a decent trading history. It’s good to see how an ETF held up in a down market, such as 2022. So, in order to make the cut for this article, a semiconductor ETF had to have at least a three-year trading history. That left five ETFs. A review of the short-, medium-, and longer-term performances of these ETFs found that one stood out: VanEck Semiconductor ETF (SMH 0.71%). It was the top performer in all time periods examined.
Another ETF that looks worthy of your investing dollars is iShares Semiconductor ETF (SOXX 1.01%). It was the No. 2 performer in the various time periods explored. 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 past performance over the long term when choosing an ETF. Past performance over a longer period tends to reflect in part the success of the strategies of the companies whose shares are included in a particular ETF.
Semiconductor ETF/Index
Year-to-Date 2024 Return
1-Year Return
5-Year Return
10-Year Return
VanEck Semiconductor ETF
iShares Semiconductor ETF
Data source: YCharts. Data as of April 17, 2024.
The VanEck Semiconductor ETF began trading in 2011 and has $17.7 billion in assets under management, as of April 17. It’s an index fund that aims to track the performance of the MVIS US Listed Semiconductor 25 Index. This index consists of the “25 largest and most liquid U.S. exchange-listed companies in the semiconductor industry.” (Liquidity relates to a stock’s average trading volume.)
The index upon which this ETF is based places heavy weighting on a company’s size. But it caps the maximum weighting of any stock in the portfolio at 20%. Currently, Nvidia is capped because it has reached a weighting of 20% (a bit over 20%, to be exact).
Holding No.
Company
Market Cap
Weight (% of Portfolio)
5-Year Return
1
Nvidia
$2.1 trillion
20.4%
1,710%
2
$721 billion
12.5%
3
4
Data sources: VanEck Semiconductor ETF and YCharts. Portfolio weights as of April 16, 2024. All other data as of April 17, 2024.
Nvidia, Broadcom, and Micron are categorized as chipmakers, though they also have varying degrees of software and services offerings. Nvidia’s graphics processing unit (GPU) chips are the favored chips for accelerating the processing of artificial intelligence workloads in data centers. Broadcom is notable for being the leading designer of custom AI chips. Micron is a big player in memory chips.
Taiwan Semiconductor Manufacturing (TSM) is the world’s largest contract manufacturer of chips. ASML makes equipment for producing chips.
The iShares Semiconductor ETF began trading in 2001, and has $12.2 billion in assets under management, as of April 17. It’s an index fund that’s designed to track the performance of the NYSE Semiconductor Index. This index consists of 20 global companies, all listed on a major U.S. stock exchange, involved in the semiconductor space.
A main difference between the iShares Semiconductor ETF and the VanEck Semiconductor ETF has to do with the weighting of stocks in their portfolios. The VanEck offering’s weightings are highly correlated with a company’s market cap, whereas the iShares ETF’s weightings are much less so. This results in the VanEck ETF being more concentrated. Its top five holdings combined account for just over 50% of its portfolio’s assets, whereas this metric is 36% for the iShares ETF.
Holding No.
Company
Market Cap
Weight (% of Portfolio)
5-Year Return
1
2
3
4
Data sources: iShares Semiconductor ETF and YCharts. Portfolio weights as of April 16, 2024. All other data as of April 17, 2024.
This ETF’s top five holdings are all chipmakers. Three of the five were discussed previously. Advanced Micro Devices (AMD) makes central processing units (CPUs) and GPUs, while Qualcomm focuses on chips for wireless connectivity.
Both ETFs featured 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 to invest in the largest companies in the chip space, this would be a positive. However, this high level of concentration increases its risk level relative to the iShares Semiconductor ETF.
Beth McKenna has positions in 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.
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