The Smartest Semiconductor ETF to Buy With $1,000 Right Now – The Motley Fool
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If you like Nvidia, you may love this ETF that's invested in it — and 34 other semiconductor companies.
Are you wishing you’d invested in semiconductor company Nvidia five years ago? I sure am. It was recently up a phenomenal 1,775% in that period, averaging annual growth of 80%! That’s enough to turn a $10,000 investment into close to $190,000 — in only five years. It’s too late to make a 2019 investment, though.
You could, of course, invest in Nvidia now. Its shares are still on the market — though some will view its shares as overvalued at this point. Its price-to-sales ratio, for example, was recently 35, nearly twice its five-year average of 19.
Still, some do see Nvidia’s shares as attractive, in part due to its artificial intelligence (AI) technology. So depending on your research and conclusions, you might invest in it now. Or you might split up your planned investment in it and buy in installments over time.
Here’s one more savvy move to consider: Invest in a semiconductor exchange-traded fund (ETF) instead. And here’s a fine candidate for your portfolio: the iShares Semiconductor ETF (SOXX 1.98%). I consider semiconductors one of the most promising industries out there, as they’re vital to so many dynamic and growing fields, such as artificial intelligence, cloud computing, virtual reality, robotics, and telecommunications. And therefore, I’m optimistic about ETFs focused on semiconductors — particularly the iShares Semiconductor ETF.
Remember that ETFs are much like mutual funds, but they trade like stocks. The iShares Semiconductor ETF is, obviously, focused on semiconductor stocks, and recently held 35 of them. Perhaps fittingly, Nvidia is its top holding. Here are its recent top 10:
Holding
Weight in ETF
Nvidia
8.9%
Broadcom
7.8%
Qualcomm
7.3%
Advanced Micro Devices
6.2%
Micron Technology
5.1%
Intel
4.6%
Microchip Technology
4.4%
Texas Instruments
4.3%
Analog Devices
4.2%
NXP Semiconductors NV
4.2%
Data source: iShares.com.
Other well-known semiconductor names, such as Taiwan Semiconductor Manufacturing, with a weighting of 4%, are also among the 35.
So by buying a few shares of the iShares Semiconductor ETF, you’ll instantly be invested in 35 semiconductor companies, including many of the best-known and most respected ones. And about 9% of your investment will be in Nvidia, too.
This is a great way to invest in a certain category of stocks without having to study them all and make critical decisions about which ones to buy, and when to buy and/or sell them. You may, for example, be very bullish on semiconductors, seeing that they’re in almost everything, including cars and refrigerators, these days. And if you don’t want to become a semiconductor expert, you can just invest in a bunch of semiconductor businesses.
Even if you are familiar with the semiconductor industry, perhaps knowing that there’s a push to increase manufacturing here in the U.S., you may not be confident about which industry denizens will end up dominant in the future. Investing in an ETF like the iShares Semiconductor ETF can help you hedge your bets.
It’s also handy if you only have a relatively small sum to invest, because it offers instant diversification without your having to invest in lots of individual stocks. (Note, though, that if you’ve diversified your dollars across lots of companies but they’re all in one industry, you’re still under-diversified.)
Before investing in any ETF (or mutual fund, for that matter), you should check what fees it charges. This ETF charges an expense ratio (annual fee) of 0.35%, which is quite reasonable. Big fees, such as ones that approach or exceed 1%, can really eat into your returns.
Speaking of returns, here’s how the iShares Semiconductor ETF has performed over the following time periods, as of early May:
iShares Semiconductor ETF’s Return Over the Past
Average Annual Gain
1 year
54.8%
3 years
15.6%
5 years
25.8%
10 years
24.7%
15 years
22.7%
Data source: Morningstar.com.
Not too shabby, right? Just remember that these past results don’t guarantee any future results. But they do demonstrate that this ETF may grow like gangbusters in the years to come — if semiconductors continue to be vital to our lives.
So give some thought to the iShares Semiconductor ETF if you’re bullish on semiconductors. (And note that there are other semiconductor ETFs out there that you might consider, as well.) And if you have high expectations for any other group of companies, such as perhaps alternative energy specialists, cloud computing enterprises, healthcare companies, or banks, know that there are sector ETFs that focus on those, too.
Selena Maranjian has positions in Micron Technology, Nvidia, Qualcomm, and iShares Trust-iShares Semiconductor ETF. The Motley Fool has positions in and recommends Advanced Micro Devices, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, Texas Instruments, and iShares Trust-iShares Semiconductor ETF. The Motley Fool recommends Broadcom, Intel, and NXP Semiconductors and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
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