Beleaguered chipmaker Intel Corp. (ticker: INTC) might finally see an end to its recent troubles following a disastrous earnings report on Aug. 1, where the firm disclosed a loss of 38 cents per share and a year-over-year drop in second-quarter revenue.
In addition, Intel suspended its quarterly dividend and announced a significant workforce reduction, laying off 15,000 employees as part of a $10 billion cost-cutting plan.
However, relief appears to be on the horizon with rumors of a potential takeover by competitor Qualcomm Inc. (QCOM), which has sparked a rally in Intel’s shares.
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While no official offer has been made yet, such a move would require extensive scrutiny from regulators but could significantly benefit Qualcomm by providing it with an entry into the PC market and diversification beyond its core mobile phone business.
For Intel, a takeover could serve as a crucial lifeline, especially if the buyout price offers a substantial premium over the current share price, potentially delivering significant returns to its beaten-down shareholder base. (Intel also reportedly drew an overture from Apollo Global Management Inc. (APO), which offered to invest up to $5 billion in the chipmaker.)
For many investors, however, the intense corporate drama and the volatility of the highly competitive semiconductor industry represent a source of uncompensated risk.
The situation with Intel underscores the volatility that can arise from management decisions, market competition and regulatory challenges — elements that individual stockholders must weather.
To sidestep the uncertainties that individual company actions like these can create, investing in a semiconductor exchange-traded fund (ETF) may be a more prudent alternative.
This allows investors to gain exposure to the broader industry’s potential upsides without being overly exposed to the risks associated with any single company’s strategic missteps or operational challenges.
“The potential benefits of investing in semiconductor ETFs include exposure to a high-growth sector with strong fundamentals, diversification across multiple companies in the industry and the potential for long-term capital appreciation,” says Sean August, CEO of August Wealth Management Group.
Here are seven of the best semiconductor ETFs to buy today:
| Fund | Expense ratio |
| iShares Semiconductor ETF (SOXX) | 0.35% |
| VanEck Semiconductor ETF (SMH) | 0.35% |
| VanEck Fabless Semiconductor ETF (SMHX) | 0.35% |
| Invesco PHLX Semiconductor ETF (SOXQ) | 0.19% |
| Invesco Semiconductors ETF (PSI) | 0.57% |
| First Trust Nasdaq Semiconductor ETF (FTXL) | 0.60% |
| SPDR S&P Semiconductor ETF (XSD) | 0.35% |
iShares Semiconductor ETF (SOXX)
“When looking for semiconductor ETFs, investors should consider factors such as the expense ratio, the underlying index or benchmark, the fund’s holdings and diversification strategy, and the ETF’s historical performance,” August says. “It is also important to assess the fund’s liquidity and trading volume to ensure that it is easy to buy and sell.” SOXX is a semiconductor ETF that hits all these points.
For a 0.35% expense ratio, SOXX tracks the NYSE Semiconductor Index, a market-cap-weighted benchmark of 30 large U.S.-listed chipmakers. It is one of the most highly traded semiconductor ETFs, averaging a volume of over 4 million shares over a 30-day period, and it has excellent liquidity, with a low 0.03% 30-day median bid-ask spread. SOXX also features an options chain.
VanEck Semiconductor ETF (SMH)
The main competitor to SOXX is SMH, which charges the same 0.35% expense ratio but tracks the MVIS U.S. Listed Semiconductor 25 Index instead. This ETF features a very top-heavy portfolio, with Nvidia Corp. (NVDA) and Taiwan Semiconductor Manufacturing Co Ltd. (TSM) making up 20.1% and 12.6% of its weight, respectively, followed by Broadcom Inc. (AVGO) and Advanced Micro Devices Inc. (AMD).
SMH has historically been a strong performer, with the chip boom helping this ETF deliver a 26.6% 10-year annualized return. Unsurprisingly, SMH ranks within the top percentile of Morningstar’s “Technology” fund peer category and has earned a five-star rating for its superior risk-adjusted returns. It is also a tax-efficient ETF, with a low 0.5% 30-day SEC yield.
VanEck Fabless Semiconductor ETF (SMHX)
Fabless semiconductor companies focus on designing and selling hardware for electronic devices, but outsource the actual manufacturing of the chips to specialized factories called fabrication plants, or “fabs.” Some investors may prefer fabless semiconductor stocks because these companies can minimize capital expenses without the financial burden of operating their own manufacturing facilities.
VanEck recently launched SMHX, which tracks the MarketVector U.S. Listed Fabless Semiconductor Index. According to VanEck, this ETF is designed to focus on innovative chip designers with strong intellectual property like Nvidia, Broadcom and Advanced Micro Devices over manufacturers and vertically integrated chipmakers. SMHX charges a 0.35% expense ratio, the same as SMH.
Invesco PHLX Semiconductor ETF (SOXQ)
“Semiconductor demand remains on the upswing, driven by investments in generative AI from U.S. tech giants, with brisk demand for GPUs, high-bandwidth memory and chipmaking devices benefiting from increased capital investments in advanced semiconductors,” says Rene Reyna, head of thematic and specialty product strategy at Invesco. For affordable semiconductor exposure, Invesco offers SOXQ.
This ETF undercuts both SOXX and SMH with a 0.19% expense ratio. It tracks a fairly notable industry benchmark in the form of the PHLX Semiconductor Sector Index, which tracks the 30 largest U.S.-listed semiconductor stocks. Top holdings include Nvidia, Broadcom, Advanced Micro Devices, Taiwan Semiconductor Manufacturing and Texas Instruments Inc. (TXN).
[READ: 8 Best Tech Index Funds to Buy Now]
Invesco Semiconductors ETF (PSI)
“PSI screens its 30 holdings for factors like price momentum, earnings momentum, quality, management action and value in an attempt to outperform,” Reyna says. Unlike the previous ETFs, the Dynamic Semiconductor Intellidex Index does not select and weight semiconductors solely based on market cap. Instead, fundamental screeners are also applied, which makes the ETF less top-heavy.
However, the ETF’s unique index strategy hasn’t paid off so far. Over the past 10 years, the Dynamic Semiconductor Intellidex Index has returned an annualized 23.6%, but the far more passive S&P Composite 1500 Semiconductors Total Return Index has outperformed it at 28.4%. Investors should also note that PSI is more expensive than SMH, SOXX and SOXQ, with a 0.57% expense ratio.
First Trust Nasdaq Semiconductor ETF (FTXL)
Another alternative to market-cap-weighted semiconductor ETFs is FTXL. Like PSI, this ETF screens semiconductor stocks for more than just size. Factors considered by FTXL include return on assets, gross income and momentum. After assessing these factors, the ETF eliminates the bottom-quartile-scoring companies and then weights the remaining ones based on their 12-month cash flow.
Unfortunately, as is the case with many “smart beta” ETFs employing more sophisticated index methodologies, FTXL has underperformed. Over the past five years, the ETF has returned an annualized 23.9%. However, the more passive Nasdaq U.S. Benchmark Semiconductors Index returned 40.9%. A big contributor to this underperformance is likely FTXL’s high 0.6% expense ratio.
SPDR S&P Semiconductor ETF (XSD)
XSD is a unique semiconductor ETF that selects and weights stocks differently compared to the previous ETFs. Instead of relying on a market-cap weighting or a fundamentals-based weighting strategy, XSD simply weights all stocks equally. This means that regardless of a semiconductor company’s size or perceived qualities, XSD assigns it an equal weight whenever its index rebalances.
For investors, this means that XSD is not only markedly less top-heavy than the previous ETFs, but it also has significantly higher exposure to small- and mid-cap chipmakers. However, this means that investors could miss out if the big players like Nvidia and Taiwan Semiconductor pull ahead. As with SOXX and SMH, XSD charges a 0.35% expense ratio, which makes it fairly affordable.
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7 Best Semiconductor ETFs to Buy in 2024 originally appeared on usnews.com
Update 09/26/24: This story was previously published at an earlier date and has been updated with new information.
