Semiconductor ETFs are exchange-traded funds that invest in companies that manufacture semiconductors. It includes the companies that directly make semiconductors as well as the ones that supply goods to these semiconductors manufacturers.
Semiconductor companies are experiencing a high growth rate due to the increased global demand for devices such as mobile phones, cars, military equipment, and other home appliances. The semiconductors sector has also benefited due to the rapidly increasing trends in artificial intelligence, cloud computing, and big data.
Semiconductor ETFs are a great way for investors to gain exposure to the semiconductor industry, which is a vital part of the technology sector. The semiconductor industry is responsible for producing the tiny chips that power a wide range of electronic devices, including smartphones, computers, and automobiles. As technology continues to advance at a rapid pace, demand for semiconductors is expected to increase, making these ETFs a compelling investment opportunity.
Ticker | Company Name | Last Price | 1-Year Return |
|---|---|---|---|
| SOXX | iShares PHLX Semiconductor ETF | $224.13 | 41.25% |
| SMH | VanEck Vectors Semiconductor ETF | $238.88 | 63.36% |
| SOXL | Direxion Daily Semiconductor Bull 3x Shares | $33.83 | 77.31% |
| XSD | SPDR S&P Semiconductor ETF | $231.92 | 18.43% |
| SOXS | Direxion Daily Semiconductor Bear 3x Shares | $21.96 | -80.13% |
| PSI | Invesco Dynamic Semiconductors ETF | $55.42 | 29.37% |
| USD | ProShares Ultra Semiconductors | $111.73 | 182.79% |
| FTXL | First Trust Nasdaq Semiconductor ETF | $90.35 | 33.08% |
| SSG | ProShares Ultra Short Semiconductors | $6.92 | -81.47% |
| ROBO | ROBO Global Robotics & Automation Index ETF | $56.22 | 12.69% |
Examples of Semiconductor ETFs
Below are some examples of popular semiconductor ETFs with brief explanations of what they do.
- VanEck Vectors Semiconductor ETF (SMH) – This ETF tracks the performance of the Market Vectors Semiconductor 25 Index, which is composed of companies that are involved in the semiconductor industry. The ETF has a strong focus on U.S.-based companies and has a diversified portfolio of holdings that include industry giants such as Intel and Qualcomm.
- iShares PHLX Semiconductor ETF (SOXX) – This ETF tracks the performance of the PHLX Semiconductor Sector Index, which is composed of companies that are involved in the design, development, and production of semiconductors. The ETF has a diversified portfolio of holdings that include industry leaders such as NVIDIA and Texas Instruments.
- SPDR S&P Semiconductor ETF (XSD) – This ETF tracks the performance of the S&P Semiconductor Select Industry Index, which is composed of companies that are involved in the semiconductor industry. The ETF has a diversified portfolio of holdings that include industry giants such as Advanced Micro Devices and Broadcom.
- First Trust NASDAQ Semiconductor ETF (FTXL) – This ETF tracks the performance of the NASDAQ CEA Smart Phone Semiconductor Index which is composed of companies that are involved in the Smartphone Semiconductors industry. With the growing trend of smartphone the ETF has holdings such as Apple, Samsung and many more.
- Global X Semiconductor ETF (SEMI) – This ETF tracks the performance of the Indxx Global Semiconductor Thematic Index. It holds companies that are involved in the Semiconductor industry around the world including Taiwan Semiconductor Manufacturing and SK Hynix.
Before investing in any ETF, it is important to conduct your own research and consider factors such as the ETF’s holdings, expense ratio, and performance history. Additionally, it is important to have a long-term investment horizon and to diversify your portfolio by investing in a range of assets.
Factors to Consider Before Investing in Semiconductor ETFs
Investors must consider the type of semiconductor ETFs based on their risk tolerance, time horizon, and overall investment goals. Moreover, before investing in semiconductor ETFs, investors must also take the assets under management and expense ratio into account. The top semiconductor ETFs should have high assets under management with a low expense ratio to maximize the returns on investment.
Additionally, the performance of semiconductor ETFs is also impacted by the regulatory environment and government regulations. For instance, many semiconductor stocks and ETFs have suffered headwinds due to the US-China trade war. Thus, the macroeconomic environment should also be considered before investing in semiconductor ETFs.
About the Semiconductor Industry
The semiconductor industry is a key component of the technology sector and is responsible for producing the tiny chips that power a wide range of electronic devices such as smartphones, computers, and automobiles. The semiconductor industry is characterized by a high level of innovation, with new technologies and products being developed constantly.
Semiconductors are made from a variety of materials, but the most common is silicon. These materials are used to create small electronic components, such as transistors and diodes, which are used in a wide range of electronic devices. The industry also produce memory chips like DRAM and NAND and logic chips like microcontrollers, processors, and application-specific integrated circuits.
The semiconductor industry is heavily dependent on research and development, and the industry has become increasingly globalized over the past few decades, with companies based in countries such as the United States, South Korea, Taiwan, and China competing in the global market. Additionally, the industry is cyclical as the demand of electronic devices vary and new products and technologies like IoT, 5G and AI are driving the growth of the market.
The semiconductor industry is also a significant contributor to the global economy, generating billions of dollars in revenue each year. The industry is projected to continue to grow in the coming years, driven by the increasing use of electronic devices and the need for more advanced technologies.
How ETFs Work
Exchange-Traded Funds (ETFs) are investment funds that are traded on stock exchanges, just like stocks. ETFs are a type of investment fund that holds a basket of assets such as stocks, bonds, commodities, or a combination of these. They allow investors to gain exposure to a diversified portfolio of assets with a single investment.
An ETF is created when an institution, typically an ETF provider or a sponsor, creates a fund and then sells shares in that fund to investors on a stock exchange. Once the shares have been created, they can be bought and sold on the open market, just like stocks, throughout the trading day. The ETF’s value is based on the value of the underlying assets it holds.
ETFs are similar to mutual funds in that they provide investors with diversified exposure to a wide range of assets, but they differ in several ways. One of the main differences is that ETFs are traded on stock exchanges, while mutual funds are typically bought and sold directly through the fund provider at the end of the trading day at the net asset value (NAV) price. This means that the price of an ETF can fluctuate throughout the day based on supply and demand, while the price of a mutual fund is determined at the end of the day based on the fund’s NAV.
Additionally, ETFs often have lower expense ratios than mutual funds, which is a fee charged to cover the costs of running the fund, making them a cost-effective option for investors.
Investors can purchase ETFs through a brokerage account, like they would with a stock. The ETF holdings are disclosed on a daily basis. ETFs offer an easy and efficient way to gain access to a variety of assets and sectors and can be used for a variety of investment strategies, like diversification, income generation or speculation.
Which Semiconductor ETFs Should I Buy?
Of the few semiconductor ETFs that trade on the US stock exchanges, we have shortlisted the best semiconductor ETFs for you to select from. Investors must aim to focus on the semiconductor ETFs that are less volatile and generate high rates of return.
At the same time, the choice should also depend upon the expense ratio and cost of capital. Certain semiconductor ETFs are highly leveraged to increase the rates of return; however, it magnifies the risks as well to a large extent. Therefore, investors must be cautious while choosing between equity ETFs, leveraged equity ETFs, and inverse equity ETFs.
