Why Pros Made the SMH Their Top Semiconductor ETF

It’s incredible to think that our entire world is powered by an object that can fit in the palm of your hand.

Every technological revolution for the last 50 years began with the microprocessor.

Today, it’s grown to a half-a-trillion-dollar industry that’s expected to double by the end of the decade.

Stocks like Nvidia have grown from a $150 billion market cap in 2020 to over $3 trillion today.

That’s why it’s crucial semiconductors are a part of your portfolio.

And we’ve got just the ticket.

According to our TrackStar data, financial pros searched out the VanEck Vectors Semiconductor ETF (SMH) more than any other ETF in the category…

…and for good reason…

Key Facts About SMH

• Net assets: $24.28 billion
• 12-month trailing yield: 0.38%
• Inception: May 5, 2000
• Expense ratio: 0.35%
• Number of holdings: 25

When investors and traders talk about semiconductors these days, they often point to the SMH as their barometer.

With over $24 billion in net assets, the SMH is one of the most liquid and heavily traded ETFs on the market.

The SMH tracks the MVIS US Listed Semiconductor 25 Index, focusing on the largest U.S.-listed semiconductor companies.

Investors enjoy a low 0.35% expense ratio, while traders favor it for the ample options available with weekly expirations.

This ETF is market-cap weighted, meaning bigger companies make up a larger portion of the portfolio, which isn’t huge at 25 stocks.

While all the stocks listed trade on the U.S. exchange, not all are based out of the U.S.

For example, Taiwan Semiconductor is located in Taiwan, while ASML is in headquartered in the Netherlands.

Source: VanEck

With its rapid capital appreciation, the ETF is more volatile than the S&P 500, as evidenced by its 1.58 beta.

Yet, with a 0.83 correlation to the S&P 500, it’s fortunes are tied to the broader index.

Notably, all the companies held in the ETF have market caps greater than $5 billion, with an average of $877 billion.

Source: VanEck

Performance

With the incredible price appreciation in stocks like Nvidia and Advanced Micro Devices, the SMH has enjoyed incredible gains for nearly two decades.

Source: VanEck

Not only are the gains substantial but they’re consistently large.

Competition

While the SMH is extraordinarily popular, it’s not the only ETF to play the semiconductor industry.

The four other top semiconductor searches by financial pros are listed below.

• iShares PHLX Semiconductor ETF (SOXX): Similar to the SMH, the SOXX is a market cap weighted ETF focused on U.S. listed semiconductor companies. However it follows the Philidelphia Semiconductor Sector Index.
• SPDR S&P Semiconductor ETF (XSD): The XSD is similar to the SOXX and SMH except that it follows the S&P Semiconductor Select Index and is equal-weighted instead of market cap-weighted.
• Direxion Daily Semiconductor Bull 3x Shares (SOXL): If you’re looking for a little extra juice, the SOXL tracks 3x the daily movement of the PHLX Semiconductor Index.
• Invesco Dynamic Semiconductors ETF (PSI): The lone wolf of the group, the PSI follows the Dynamic Semiconductor Intellidex Index, selecting semiconductor stocks based on various performance factors. Unlike conventional ETFs, PSI’s weighting reflects a blend of fundamental metrics and risk considerations.

Normally, leveraged ETFs significantly underperform their unleveraged peers. Yet, the gains in semiconductors are so consistent that the SOXL is an exception to the rule.

Nonetheless, the SMH does incredibly well, beating out the rest of the group in total performance.

Our Opinion 10/10 

With a low expense ratio, ample liquidity, and outstanding performance, the SMH is a solid investment.

It’s been our preferred way to invest in the semiconductor industry for several years running, and it’s not hard to see why.