VanEck Semiconductor ETF (SMH): How to Buy – The Motley Fool
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Founded in 1993, The Motley Fool is a financial services company dedicated to making the world smarter, happier, and richer. The Motley Fool reaches millions of people every month through our premium investing solutions, free guidance and market analysis on Fool.com, top-rated podcasts, and non-profit The Motley Fool Foundation.
VanEck Semiconductor ETF (SMH 0.22%) enables investors to invest in the global semiconductor sector. Semiconductors (also known as chips or semis) are crucial for the modern world as they’re in computers, smartphones, appliances, gaming hardware, and medical equipment. Specialized chips are also vital to new technologies, like artificial intelligence (AI).
According to McKinsey, the global semiconductor market will reach $1 trillion by 2030, up from $600 billion in 2021. This sector-focused exchange-traded fund (ETF) enables investors to zero in on this opportunity through a single fund investment.
This guide will teach you everything you need to know about investing in the VanEck Semiconductor ETF and how to invest in ETFs for beginners.
VanEck Semiconductor ETF is a sector ETF focused on semiconductor stocks. It aims to track the performance of the MVIS US Listed Semiconductor 25 Index, which seeks to follow the overall performance of companies involved in semiconductor production and equipment.
It’s the biggest ETF focused on semiconductor stocks based on assets under management (AUM) of $22.8 billion in mid-2024. The index and this ETF track the most liquid companies in the industry based on their market capitalization and trading volumes.
Its methodology favors the largest companies in the sector, so it will assign a higher weighting to the biggest semiconductor stocks. It also holds domestic and U.S.-listed foreign companies, giving investors broader exposure to the global semiconductor market.
It’s very easy to buy the VanEck Semiconductor ETF. Shares trade on a major stock exchange, allowing you to purchase the ETF in any brokerage account. Here’s a four-step guide to help you add the semiconductor ETF to your portfolio.
You’ll have to open and fund a brokerage account before buying shares of any ETF. If you need to open one, here are some of the best-rated brokers and trading platforms. Take your time researching the brokers to find the best one for you.
Before making your first trade, you’ll need to determine a budget for how much money you want to invest. You’ll then want to figure out how to allocate that money. The Motley Fool’s investing philosophy recommends building a diversified portfolio of 25 or more stocks you plan to hold for at least five years. So, if you have $10,000, you’d want to invest about $400 across 25 different holdings.
On the one hand, investors can often allocate a larger portion of their portfolio to ETFs since they offer built-in diversification benefits. On the other hand, the VanEck Semiconductor ETF holds several semiconductor stocks, so its sector focus and weighting toward the largest semiconductor companies make it less diversified than other ETFs. You don’t want to allocate too much of your portfolio to a single-sector ETF.
You need to thoroughly research any potential investment before committing your money. When analyzing an ETF, you should review its strategy, holdings, expense ratio, and historical performance and compare it to the best ETFs to buy.
Once you’ve opened and funded a brokerage account, set your investing budget, and researched the investment, it’s time to buy shares. The process is relatively straightforward. Go to your brokerage account’s order page and fill out all the relevant information, including:
Once you complete the order page, click to submit your trade and add the semiconductor ETF to your portfolio.
VanEck Semiconductor ETF tracks the MVIS US Listed Semiconductor 25 Index, which features 25 stocks. The ETF had 26 holdings in mid-2024 (25 semiconductor stocks plus cash). The top 10 were:
The companies rank as the largest global semiconductor companies by market value.
Investing is very personal. You should pick stocks and funds that align with your risk tolerance and return objectives; not every investment will be right for your situation. With that in mind, here are some reasons you might want to invest in VanEck Semiconductor ETF:
Here’s why this ETF might not be right for you:
Yes, the VanEck Semiconductor ETF pays a dividend. In mid-2024, the fund had a dividend yield of about 0.4%, lower than the dividend yields of the S&P 500 Index (1.3%) and Nasdaq-100 Index (0.8%).
That low dividend yield is because many semiconductor companies prefer to retain most of their earnings to fund their continued expansion, like building additional semiconductor fabrication facilities. Meanwhile, if they return excess cash to investors, many semiconductor companies (and technology stocks, in general) prefer to use that money to repurchase shares rather than pay higher dividends.
ETF sponsors like VanEck charge fees to fund investors to manage the assets, known as the expense ratio. The VanEck Semiconductor ETF had a 0.35% expense ratio.
Its expense ratio was in line with other large semiconductor ETFs (iShares Semiconductor ETF (NYSEMKT:SOXX) and SPDR S&P Semiconductor ETF (XSD -0.58%), also with 0.35% expense ratios). However, it wasn’t as low-cost as Invesco PHLX Semiconductor ETF (NYSEMKT:SOXQ) at 0.19%.
At 0.35%, an investor would pay about $3.50 per year in management fees for every $1,000 invested in the VanEck Semiconductor ETF. For comparison, the fee would be only $1.90 per year for a lower-cost rival fund, like the Invesco PHLX Semiconductor ETF.
The semiconductor industry has grown briskly over the years as more products have added technological features. That has helped drive strong performance for semiconductor stocks and the ETFs that track them.
Here’s a snapshot of the VanEck Semiconductor ETF’s returns compared to its benchmark and the S&P 500:
The fund’s performance over the past decade has been truly remarkable. As of mid-2024, it ranked as the best-performing ETF over the past 10 years (excluding leveraged ETFs). It was one of four semiconductor ETFs in the top 10 (all of which were technology ETFs).
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VanEck Semiconductor ETF is one of several sector ETFs focused specifically on semiconductor stocks. The fast-growing semiconductor sector has produced robust returns for investors (the ETF was the best-performing non-leveraged ETF over the last 10 years). With the semiconductor sector on track to continue growing rapidly, the fund certainly warrants consideration for your portfolio.
Anyone with a brokerage account can buy VanEck Semiconductor ETF. To purchase shares, you would open the order page at your brokerage account and fill out all the relevant information, including:
Double-check your order and then click submit to add this semiconductor ETF to your portfolio.
The symbol for the VanEck Semiconductor ETF is SMH.
VanEck Semiconductor ETF has certainly been a good investment over the years. It ranked as the best-performing ETF over the last 10 years (excluding leveraged ETFs), with a 28.2% annualized total return.
The ETF could continue delivering strong returns in the future. It holds the top 25 U.S.-listed semiconductor stocks, with a higher allocation to the largest ones (led by AI chip giant Nvidia).
Given the expected growth in semiconductor demand (especially for AI chips), leading companies should continue growing their revenue and earnings briskly, which should drive strong stock price appreciation and benefit this ETF as its value rises along with the global sector.
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