One of the best-performing industries in the stock market over the past decade has been semiconductors.
Companies in this segment design and manufacture the microchips that power everything from smartphones and cars to artificial intelligence (AI) and cloud computing.
“Semiconductor stocks may be well positioned for the future due to strong demand from AI and continuous advancements across other critical technologies,” says Arne Noack, regional investment head — Xtrackers, Americas — at DWS Group. “Additionally, ongoing constructive policy, such as the CHIPS and Science Act, may be supportive to domestic production and reduce dependency, creating a favorable environment for growth.”
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Looking ahead, however, the push for semiconductor dominance might not come solely from technology advancements and government subsidies but also from geopolitical dynamics.
In his 2022 book, “Chip War: The Fight for the World’s Most Critical Technology,” author Chris Miller highlighted vulnerabilities in the global semiconductor supply chain and the implications for the U.S. as a superpower in the coming decade, especially given the rise of China.
“Currently, China is enhancing its domestic semiconductor production and AI industry to reduce dependence on foreign technologies and bolster economic resilience,” says Derek Yan, senior investment strategist at KraneShares.
Miller notes that a significant share of semiconductor production is concentrated outside the U.S. For example, Taiwan produces 37% of the world’s new computing power, and Dutch company ASML Holdings NV (ticker: ASML) supplies all of the ultraviolet lithography machines essential for chip manufacturing.
Amid rising geopolitical tensions between the U.S., its allies and China, this dynamic has become increasingly important for semiconductor investors to consider. Some newer ETFs are already adapting to this shifting landscape.
The Xtrackers U.S. National Critical Technologies ETF (CTRC) is a great example. This ETF selects companies tied to one of 14 critical technology sectors that score a sufficiently high “Geostrategic Risk Rating.” The result is a portfolio that includes approximately 10% exposure to semiconductor stocks, underscoring their importance in maintaining U.S. technological leadership.
On the other hand, you have the KraneShares CICC China 5G & Semiconductor Index ETF (KFVG), which offers a contrarian bet for investors bullish on China’s technological posture and role on the world stage. Either way, there’s no shortage of avenues for investors to engage with this high-growth sector.
Here are seven of the best pure-play semiconductor ETFs to buy today:
| ETF | 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% |
| First Trust Nasdaq Semiconductor ETF (FTXL) | 0.60% |
| SPDR S&P Semiconductor ETF (XSD) | 0.35% |
| Direxion Daily Semiconductor Bull 3X Shares (SOXL) | 0.76% |
iShares Semiconductor ETF (SOXX)
“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. For example, the popular semiconductor ETF SOXX has returned an annualized 23.8% over the past 10 years.
This ETF tracks the NYSE Semiconductor Index. It has a portfolio of 30 holdings, with major names including Nvidia Corp. (NVDA), Broadcom Inc. (AVGO), Advanced Micro Devices Inc. (AMD), Qualcomm Inc. (QCOM) and Texas Instruments Inc. (TXN). Over the years, SOXX has grown to $14.3 billion in assets under management (AUM) and trades with high liquidity thanks to a minimal 0.02% 30-day bid-ask spread.
VanEck Semiconductor ETF (SMH)
“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.” SMH is a semiconductor ETF that checks all these boxes.
This ETF is even larger than SOXX, with $23.6 billion in AUM. It tracks the MVIS U.S. Listed Semiconductor 25 Index, which features many of the same companies in SOXX but is more top-heavy. As with SOXX, SMH is highly liquid, with a 0.02% 30-day median bid-ask spread, and relatively affordable, with the same 0.35% expense ratio. Over the past 10 years, this ETF has returned 26.6% annualized.
VanEck Fabless Semiconductor ETF (SMHX)
SMH now has a counterpart in SMHX. This ETF also tracks semiconductor stocks but focuses specifically on a distinct category: fabless companies, or those without fabrication plants. Fabless semiconductor companies specialize in designing chips and rely on outsourcing to third-party manufacturers for production. Examples in SMHX’s portfolio include Nvidia, Broadcom and Advanced Micro Devices.
Why go fabless? Some investors prefer to avoid fabrication plants due to their capital-intensive and cyclical nature, which can introduce additional volatility. This is primarily due to the operational burdens of production facilities. SMHX offers a way to sidestep these risks and instead focus on leading domestic fabless companies with better margins and less geopolitical risk. SMHX charges a 0.35% expense ratio.
Invesco PHLX Semiconductor ETF (SOXQ)
“While certain segments of the semiconductor market, like memory, may be facing near-term pressure due to oversupply concerns, the longer-term growth potential driven by advancements in AI, autonomous driving and high-performance computing remains strong,” says Rene Reyna, head of thematic and specialty product ETF strategy at Invesco. For semiconductors, Invesco offers SOXQ.
This ETF tracks the well-known PHLX Semiconductor Sector Index, which holds 30 large, U.S.-listed semiconductor stocks. “Having broad exposure to the semiconductor ecosystem via an ETF allows investors to capture these growth opportunities while helping navigate the cyclical nature of the industry,” Reyna says. SOXQ is also cheaper than SMH and SOXX with a 0.19% expense ratio.
[READ: 6 of the Best AI ETFs to Buy Now]
First Trust Nasdaq Semiconductor ETF (FTXL)
The aforementioned semiconductor ETFs weight their holdings by market capitalization. That is, the bigger a company is, the more weight it receives. This creates a bias toward larger semiconductor stocks regardless of their fundamentals. For a different approach, consider FTXL, which tracks the fundamentals-weighted Nasdaq U.S. Smart Semiconductor Index for a 0.6% expense ratio.
FTXL selects its holdings based on three factors: trailing-12-months return on assets, trailing-12-months gross income, and momentum in the form of three-, six-, nine- and 12-month price appreciation. The bottom 25% scoring companies are eliminated, and the remaining 30-50 stocks are weighted based on their trailing-12-months cash flow, subject to an 8% cap. The ETF is rebalanced semi-annually.
SPDR S&P Semiconductor ETF (XSD)
SMH, SOXX, SMHX and SOXQ weight their holdings primarily by market capitalization. FTXL weights its holdings based on fundamental factors. A third alternative is XSD, which uses the simplest methodology of all: equal weighting. Its benchmark, the S&P Semiconductor Select Industry Index, simply allocates equal proportions to all 40 of its holdings regardless of the company’s size or fundamentals.
The practical effect of this methodology is a much higher allocation toward up-and-coming small- and mid-cap semiconductor stocks, and less concentration in large-cap players like Nvidia. This makes XSD a valuable tool for semiconductor investors looking to bet on the growth of the overall industry instead of just a handful of giants. XSD charges the same 0.35% expense ratio as SOXX and SMH.
Direxion Daily Semiconductor Bull 3X Shares (SOXL)
The high volatility of the semiconductor industry may deter some investors from buying and holding in the long term, but it can create opportunities for short-term traders. If you’re bullish on the near-term prospects for semiconductor stocks, perhaps due to a string of upcoming earnings reports, a leveraged semiconductor ETF like SOXL can help you express that thesis without the need for margin or options trading.
This ETF offers three-times leveraged daily exposure to the price movements of the NYSE Semiconductor Index, which is the benchmark tracked by SOXX. Thus, gains and losses for semiconductor stocks are significantly amplified for SOXL. However, investors should avoid holding this ETF for long periods due to a high 0.76% net expense ratio and unpredictable compounding returns past one day.
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7 Best Semiconductor ETFs to Buy for 2025 originally appeared on usnews.com
Update 11/26/24: This story was previously published at an earlier date and has been updated with new information.
