Best Semiconductor ETFs 2024

What are semiconductors?

Semiconductor chips, commonly referred to as Semiconductors in the financial press is an electric circuit with many components such as transistors and wiring formed on a semiconductor wafer.

Semiconductor chips controls and manages the flow of electric current in electronic equipment and devices. As a result, it is an essential component of electronic devices and can be found in thousands of products such as computers, smartphones, appliances, gaming hardware, and medical equipment.

Broadly speaking, there are four main product categories of semiconductors – Memory, Microprocessors, Commodity Integrated Circuits and Complex SOC (System on a chip).

Semiconductors have become crucial inputs in a wide array of technologies, from automobiles to mobile phones. The USA, while a leading semiconductor designer, has lagged behind Asia in semiconductor manufacturing. This mismatch could potentially lead to the U.S. falling behind in the global tech innovation race, which led U.S. lawmakers to push for government support of this crucial industry and resulted in the CHIPS Act of 2022 which intends to support domestic manufacturing, design and research via billions of dollars of grants and incentives.

Best Semiconductor ETFs

Some of the most popular and largest Semiconductor thematic ETFs are listed in the table below:

Comparing the Top 10 holdings across the 3 ETFs, we identified many similar holdings.

Companies such as Nvidia and Micron features in the Top 10 of all 3 ETFs while companies such as Qualcomm, Broadcom, Applied Materials features in both the VanEck and Invesco Dynamic ETFs.

Essentially, there are not many big companies in the semiconductor industry under the GICS methodology managed by MSCI and when we dived into the entire holdings of all 3 ETFs, we found high levels of replication and similarity in holdings, albeit with different ownership percentages.

VanEck Semiconductor (SMH)

VanEck Semiconductor ETF (SMH) seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS US Listed Semiconductor 25 Index (MVSMHTR), which is intended to track the overall performance of companies involved in semiconductor production and equipment.

The top 10 holdings as of 18 April 2024 are as follows:

The country and sector breakdown are as follows:

As the VanEck Semiconductor ETF is actively managed and aims to track the MVIS US Listed Semiconductor 25 Index, Do also check out the latest developments of the VanEcK Semiconductor ETF at their website here before an investment is made.

SPDR S&P Semiconductor (XSD)

The SPDR S&P Semiconductor is an ETF that seeks to provide investment results that correspond generally to the total return performance of the S&P Semiconductor Select Industry Index.

S&P Select Industry Indices such as the SPDR S&P Semiconductor Select Industry Index are designed to measure the performance of the selected sub-industry. The Index comprises stocks in the S&P Total Market Index that are classified in the GICS semiconductor sub-industry.

Here are the top 10 holdings as of 18 April 2024:

Do also check out the latest developments of the SPDR S&P Semiconductor ETF at their website here before an investment is made.

Invesco Dynamic Semiconductors (PSI)

The Invesco Dynamic Semiconductors ETF(PSI) is based on the Dynamic Semiconductor Intellidex Index.

The underlying index is comprised of approximately 30 US semiconductors companies. These are companies that are principally engaged in the manufacture of semiconductors. The Fund and the Index are rebalanced and reconstituted quarterly in February, May, August and November.

The top 10 holdings in PSI as of 19 April 2024 are as follows:

Do also check out the latest developments of the Invesco Dynamic Semiconductors ETF at their website here before an investment is made

Should you invest in Semiconductor ETFs?

ETFs are a cheap and easy way to invest in the markets. They are cheaper than unit trusts and you just need to bet on the general theme rather than having to spend effort and time to get the stock picks right.

The outlook for the semiconductor industry remains healthy. Semiconductors have become crucial components for many of the innovative technologies that are driving the global economy. Against this backdrop of tech innovation, semiconductor demand has remained very strong, and although demand has currently slowed in the near term due to short term macro trends, the long term trend is intact as proven recently by the US CHIPS Act of 2022.

The grants and incentive provided under the US CHIPS Act of 2022 is estimated to amount to $52 billion in manufacturing grants and research investments. This is expected to lead to at least another $150 billion worth of investments by companies.

Micron has already announced a $40 billion investment in memory chip manufacturing, critical for computers and electronic devices, which will create up to 40,000 new jobs in construction and manufacturing. This investment alone will bring the U.S. market share of memory chip production from less than 2 percent to up to 10 percent over the next decade.

Qualcomm and GlobalFoundries, have announced a new partnership that includes $4.2 billion to manufacture chips in an expansion of GlobalFoundries’ upstate New York facility. Qualcomm, the leading fabless semiconductor company in the world, announced plans to increase semiconductor production in the U.S. by up to 50 percent over the next five years.

Globally, countries such as China have also viewed the semiconductor industry as a critical industry and Chinese companies are lining up to invest in semiconductor sector amid Beijing’s efforts to spur greater self-sufficiency amid US crackdowns.

Hence it is very clear that the long term trend of semiconductors is strong.

We have shared with you 3 ETFs you can consider if you wish to bet on semiconductors. As the semiconductor theme is narrow, although all 3 ETFs have different Top 10 holdings. Investors may have their pick of semiconductor stocks based on their preferred Top 10 holdings, but it is likely that the correlation between all 3 are high.