7 Best Semiconductor ETFs to Buy in 2024
iShares Semiconductor ETF (SOXX)
Investing in semiconductor exchange-traded funds (ETFs) may provide many advantages, such as exposure to a rapidly expanding industry with robust fundamental data, diversification across several industry firms, and the possibility for long-term capital gain.
In comparison to the stock market as a whole, SOXX has returned an annualized 23.9% over the last ten years.
One of the most well-known semiconductor exchange-traded funds (ETFs) available is SOXX, which has assets under management (AUM) of around $8.8 billion. With approximately 1.4 million shares traded on average over a 30-day period and a 30-day median bid-ask spread of only 0.03%, the ETF enjoys great liquidity due to its popularity. Following the ICE Semiconductor Index, SOXX has a 0.35% cost ratio.
VanEck Semiconductor ETF (SMH)
Investors should take into account factors like the ratio of expenses to revenues, the underlying index or the standard, the fund’s holdings and diversification strategy, and the ETF’s past performance when searching for semiconductor ETFs (7 Best Semiconductor ETFs to Buy in 2023). “To make sure that the fund is simple to acquire and sell, it’s also critical to evaluate its liquidity and trading volume.”
These criteria are met by SMH, an ETF with over $9 billion in AUM and a cost ratio of 0.35%, which is the same as SOXX. With a five-star Morningstar rating, this ETF follows the MVIS US Listed Semiconductor 25 Index and has outperformed most of its peer group in the past when considering risk adjusted returns.
SPDR S&P Semiconductor ETF (XSD)
The majority of semiconductor exchange-traded funds use a market cap-weighted methodology, allocating larger weights to stocks with larger market capitalizations. This strategy may result in concentration risk if a small number of mega-cap semiconductor companies (7 Best Semiconductor ETFs to Buy in 2023) control the majority of the ETF’s top holdings. Investors may use XSD, which uses a modified equal-weight index, as a solution to this.
By tracking the S&P Semiconductor (7 Best Semiconductor ETFs to Buy in 2023) Select Industry Index, XSD provides more consistent exposure across 38 large-, mid-, and small-cap U.S. semiconductor companies. Even with its massive market capitalization, Nvidia makes up just around 3 percent of this ETF. The ETF is cost-competitive since it has the same 0.35% expense ratio as SMH and SOXX.
First Trust Nasdaq Semiconductor ETF (FTXL)
The majority of semiconductor ETFs go above and beyond to assess potential holdings in light of other variables. This is often done to ensure that the final portfolio satisfies standards related to growth potential, financial health, and other factors. One such example is FTXL, which keeps track of the Nasdaq U.S. Smart Semiconductor (7 Best Semiconductor ETFs to Buy in 2023) Index. Its spending ratio (0.6%) is higher than SMH, XSD, and SOXX’s, however.
The FTXL index selects semiconductor companies from the Nasdaq U.S. Benchmark Index and assigns a ranking to them based on three metrics: momentum, measured as three-, six-, nine-, and twelve-month increases in share price, and trailing 12-month returns on assets and gross income. The lowest quartile is eliminated after the companies are ranked, and the remaining stocks are then weighted according to their trailing 12-month cash flow.
Invesco Dynamic Semiconductors ETF (PSI)
Another five-star Morningstar-rated semiconductor exchange-traded fund to watch is PSI. This ETF tracks the Intellidex Dynamic Semiconductors (7 Best Semiconductor ETFs to Buy in 2023) index, which similarly to FTXL’s index chooses firms based on additional screeners. Currently, this entails examining value, financial and management quality, earnings momentum, and share price movement.
At the moment, PSI holds 31 stocks, with Nvidia holding the largest percentage at 6%. With 5.5% and 5.2%, respectively, Broadcom Inc. (AVGO) and Applied Materials Inc. (AMAT) are ranked second and third, respectively. Nvidia’s main rival, Advanced Micro Devices Inc. (AMD), is now placed seventh with a weighted 4.5%. The ETF has a cost ratio of 0.55%.
Invesco PHLX Semiconductor ETF (SOXQ)
ETFs like FTXL and PSI that have more filters in their indexes usually have higher cost ratios. There’s a chance that these increased expenses may eventually reduce overall performance. With the lowest expense ratio on our list (0.19%), SOXQ is an excellent low-cost option for investors who want to prioritize minimal expenses. PSI is also offered by Invesco.
By tracking the PHLX Semiconductor Sector Index, SOXQ offers exposure to the 30 largest U.S. listed semiconductor stocks (7 Best Semiconductor ETFs to Buy in 2023). Currently, its top holdings are AMD, Broadcom, Nvidia, Intel Corp. (INTC), and Texas Instruments Inc. (TXN). But investors should be aware that, with just around $132 million in AUM, this ETF is not as well-liked as the options that came before it.
Direxion Daily Semiconductor Bull 3X Shares ETF (SOXL)
The ability to trade options is a feature of the majority of the older ETFs that may provide investors more exposure. In order to increase their profits, investors may also purchase these ETFs on margin. With a 0.94% cost ratio, SOXL is still advantageous for investors who do not wish to leverage their holdings with margin or trade options on semiconductor ETFs.
The daily goal of this leveraged ETF is to beat the ICE Semiconductor (7 Best Semiconductor ETFs to Buy in 2023) Index. If the index gains 1%, SOXL will provide a return of 3%. In the event that the index drops 1%, SOXL will drop 3%. The optimal use case for SOXL is short-term trading since the leveraged exposure is established daily. Investors in SOXLs over the long term may experience very high volatility and erratic returns.
FAQ
1. What are ETFs for semiconductors, and why should I think about buying any in 2023?
Exchange-traded funds, or ETFs, specifically geared at tracking the performance of a certain basket of semiconductor-related firms are known as semiconductor ETFs. Investors may get exposure to the semiconductor sector via these exchange-traded funds (ETFs) without having to buy individual equities.
2. Out of all the semiconductor ETFs, which are the top seven to purchase in 2023?
Which of these ETFs best suits your investing objectives will depend on your study into each one’s unique aims, expense ratios, and past performance. These ETFs have diverse investment strategies and holdings.
