Whose Semiconductor ETF Pick Is Better? Pros or Joes?

Financial pros and retail investors agree on a lot.

In fact, the rankings of stocks by search volume is typically around 70%-80% when you look at any given industry in our Trackstar data.

With ETFs, that’s usually closer to 90%. 

So, we found it rather unusual that financial pros looked up the iShares PHLX Semiconductor ETF (SOXX) 2x more than the VanEck Vectors Semiconductor ETF (SMH), while retail did the opposite.

Who’s got better tastes?

Let’s find out.

Key Facts About SOXX

• Net assets: $8.7 billion
• 12-month trailing yield: 1.19%
• Inception: July 10, 2001
• Expense ratio: 0.35%
• Number of holdings: 31

SOXX is a passively managed ETF comprised of the 30 largest US- listed semiconductor companies.

This includes companies that manufacture materials with semiconductors used in electronic applications or LED/OLED technology, as well as services or equipment associated with semiconductors.

The top 10 holdings for the SOXX are noted below:

Source: ETF.Com

As you’ll learn below, the SMH ETF outperformed the SOXX over a 5-year period.

The main difference between the two ETFs comes down to weighting.

The SOXX caps the weights of the top 5 securities at 8% and the remaining at 5%. Plus, ADRs (non-US-based companies) cumulative weighting is capped at 10%.

The SMH caps weightings at 20%.

This gives the SMH a much heavier leaning towards top-performing companies like NVIDIA.

These are the top 10 holdings for the SMH:

Source: ETF.Com

Performance

Despite the difference in performance, the SOXX is no slouch.

The ETF returned a whopping 23.1% on average per year over the last five and roughly the same over the last decade:

Source: ETF.Com

Because of the highly cyclical nature of the semiconductor industry, the SOXX is more volatile than general market ETFs.

Competition

Unsurprisingly, one of the top searches by retail and financial pros is the 3x leverage. However, as you’ll see below, it’s not a great long-term investment.

By comparison, the SOXX provides the second-best returns behind the SMH, with the XSD just behind and then the PSI.

• Direxion Daily Semiconductor Bull 3x Shares (SOXL): If you’re looking for a good trading instrument, the SOXL provides 3x leverage to a basket of semiconductor stocks. However, its high expenses and natural decay make it a poor investment.
• VanEck Vectors Semiconductor ETF (SMH): What more is there to say about the SMH? It’s more liquid than the SOXX with a bit longer history. However, its dividend is a touch smaller.
• SPDR S&P Semiconductor ETF (XSD): S&P’s semiconductor index is a bit broader, allowing for companies of any market capitalization.
• Invesco Dynamic Semiconductors ETF (PSI): PSI uses a proprietary methodology to select stocks, often reducing mega-caps and evenly weighting stocks.

Notice how the more ‘evenly’ weighted or broad an ETF is, the worse its performance.

That’s generally the case when the sector is in a bull market.

It’s the opposite during market declines.

Our Opinion 9/10 

We still prefer the SMH over the SOXX as we don’t like weighting caps or any other limitations.

However, the SOXX is a well-run ETF with low expenses and an attractive dividend yield. For most folks, you can’t go wrong here.