Rising demand has spurred fresh industry investments to boost chip production. With support from the CHIPS and Science Act, the United States is projected to more than triple its semiconductor manufacturing capacity and attract a greater share of private investment in the sector.
Given this long-term positive sentiment, watching semiconductor ETFs such as SPDR S&P Semiconductor ETF (XSD), iShares Semiconductor ETF (SOXX), and VanEck Semiconductor ETF (SMH) might be wise choices now.
The rising demand for semiconductors is driven by AI, 5G, electric vehicles, and cloud computing growth. As these technologies expand, the need for chips intensifies, creating opportunities in the semiconductor industry. ETFs offer diversified exposure, reducing risk by investing in a basket of semiconductor companies across the supply chain.
Moreover, the Semiconductor Industry Association (SIA) reported global sales of $149.90 billion during the second quarter of 2024, up 18.3% from last year. In fact, companies in the semiconductor ecosystem have announced more than 90 new manufacturing projects in the United States since CHIPS was first introduced in Congress, totaling nearly $450 billion in announced investments across 28 states.
With that in mind, let’s look at the fundamentals of three Technology Equities ETFs, beginning with the third one.
ETF #3: SPDR S&P Semiconductor ETF (XSD)
XSD is an exchange-traded fund launched by State Street Global Advisors, Inc. It is managed by SSGA Funds Management, Inc. The fund invests in stocks of companies operating across information technology, semiconductors and semiconductor equipment, and semiconductors sectors.
With $1.40 Billion in AUM, its top holdings are Semtech Corporation (SMTC) with a 5.1% weighting, Impinj, Inc. (PI) at 4.4%, and Monolithic Power Systems, Inc. (MPWR) at 3.7% weight.
The ETF’s expense ratio is 0.35%, compared to the category average of 0.58%. XSD’s fund inflows were $50.34 million over the past month. The fund pays an annual dividend of $0.55, which translates to a 0.24% yield at the current price level.
XSD has gained 3.5% over the past three months to close the last trading session at $231.06. It has a five-year beta of 1.75. The fund’s NAV was $230.94 as of September 20, 2024.
XSD’s POWR Ratings reflect this promising outlook. The ETF’s overall A rating equates to a Neutral in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The fund has a C grade for Trade and Buy & Hold. XSD is ranked #77 in the Technology Equities ETFs ETF. Click here to access all the XSD ratings.
ETF #2: iShares Semiconductor ETF (SOXX)
SOXX is an exchange-traded fund launched by BlackRock, Inc. The fund focuses on companies operating in the information technology, semiconductors, and semiconductor equipment sectors. It invests in growth and value stocks of companies across diversified market capitalizations.
With $14.08 billion in AUM, the fund has a total of 15 holdings. SOXX’s top holding is Broadcom Inc. (AVGO) with a 10.4% weighting, followed by NVIDIA Corporation (NVDA) with an 8.9% weighting, and Advanced Micro Devices, Inc. (AMD) with 7.8%.
SOXX has an expense ratio of 0.35%, lower than the category average of 0.58%. It currently has a NAV of $223.65. Its fund inflows came in at $281.48 billion over the past month.
The fund’s annual dividend of $1.46 yields 0.64% on the current share price. Its four-year average yield is 0.86%. Its dividend payouts have increased at a CAGR of 12.5% over the past three years and 12.6% over the past five years.
SOXX has gained 42.5% over the past year and 21.4% over the past nine months to close the last trading session at $223.67.
SOXX’s POWR Ratings reflect solid prospects. Its overall rating of C equates to a Neutral in our proprietary rating system.
SOXX has a C grade for Buy & Hold and Trade. Of the 119 ETFs in the same group, it is ranked #75. Get all SOXX ratings here.
ETF #1: VanEck Semiconductor ETF (SMH)
SMH is an exchange-traded fund launched and managed by Van Eck Associates Corporation. The fund invests in growth and value stocks of companies across diversified market capitalizations. It seeks to track the performance of the MVIS US Listed Semiconductor 25 Index by using a full replication technique.
With $22.66 billion in AUM, SMH’s top holding is NVDA, with a 20.7% weighting, followed by Taiwan Semiconductor Manufacturing Company Limited (TSM), with a 14.2% weighting, and AVGO, with 8.6%. SMH has a total of 15 holdings.
SMH has an expense ratio of 0.35%, lower than the category average of 0.58%. It currently has a NAV of $237.83. Its fund inflows came in at $6.02 billion over the past year.
The ETF pays an annual dividend of $1.04, which yields 0.44% on the current price. It has a four-year average dividend yield of 0.85%. Its dividend payouts have increased at a CAGR of 11.6% over the past three years and 5% over the past five years.
SMH has gained 66.6% over the past year and 40.7% over the past nine months to close the last trading session at $237.90.
SMH’s POWR Ratings reflect its promising prospects. The ETF’s overall C rating equates to a Neutral in our proprietary rating system.
SMH has a C grade for Buy & Hold and Trade. In the same ETF group, it is ranked #74. Click here to access all of SMH’s POWR Ratings.
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SMH shares were trading at $238.59 per share on Monday afternoon, up $0.69 (+0.29%). Year-to-date, SMH has gained 36.44%, versus a 20.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Nidhi Agarwal
Nidhi is passionate about the capital market and wealth management, which led her to pursue a career as an investment analyst. She holds a bachelor's degree in finance and marketing and is pursuing the CFA program. Her fundamental approach to analyzing stocks helps investors identify the best investment opportunities.
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