Benefiting from the favorable "Chips and Science Act" and robust demand for faster and more efficient artificial intelligence chips, the semiconductor industry showed strong performance in 2023, particularly with the leading company NVIDIA (NVDA), which experienced a surge of over 230%, making it one of the best-performing companies in the S&P 500 index.
Many semiconductor stocks fall under the growth category, implying potential short-term price fluctuations. To mitigate the risk associated with individual stock volatility, investors may consider investing in semiconductor ETFs, which cover various sectors, including semiconductor manufacturers, equipment suppliers, and design companies, reducing the risk of a decline in any single stock.
(Semiconductor ETFs are exchange-traded funds focused on companies in the semiconductor industry. These ETFs typically track indices composed of semiconductor stocks, providing investors with diversified exposure to a range of related companies, such as semiconductor manufacturers, equipment suppliers, and companies involved in semiconductor design.)
The 5 Best Semiconductor ETFs of 2023
VanEck Semiconductor ETF
The VanEck Semiconductor ETF (SMH) tracks a market-cap-weighted index of 25 of the largest U.S.-listed semiconductors companies. Midcap companies and foreign companies listed in the U.S. can also be included in the index.
2023 return: 65.70%
Assets under management: $10.9B
Expense ratio: 0.35%
iShares Semiconductor ETF
The iShares Semiconductor ETF (SOXX) tracks a modified market-cap-weighted index of 30 U.S.-listed semiconductor companies, including manufacturers of materials with semiconductors that are used in electronic applications and providers of services or equipment associated with semiconductors.
2023 return: 57.36%
Assets under management: $9.6B
Expense ratio: 0.35%
Invesco PHLX Semiconductor ETF
The Invesco PHLX Semiconductor ETF (SOXQ), tracks a modified market-cap-weighted index of 30 U.S.-listed semiconductor companies involved in the design, distribution, manufacturing and sale of semiconductors. Investors should note that SOXQ’s portfolio may include some foreign companies with American depositary receipt, or ADR, listings in addition to its U.S.-listed stocks.
2023 return: 56.87%
Assets under management: $168.7M
Expense ratio: 0.19%
First Trust Nasdaq Semiconductor ETF
The First Trust Nasdaq Semiconductor ETF (FTXL) tracks an index of the most liquid U.S. semiconductor companies, weighted according to factors related to value, volatility and growth. While many funds perform a basic liquidity screen as part of their index construction and rebalancing, FTXL is noteworthy because it goes beyond the basic screen and uses liquidity selection.
10-year return: 44.88%
Assets under management: $1.2B
Expense ratio: 0.60%
Columbia Seligman Semiconductor and Technology ETF
The Columbia Seligman Semiconductor and Technology ETF (SEMI) is an actively managed fund that seeks capital appreciation by investing in domestic or foreign semiconductor and technology-related companies. The fund uses the Fidelity nontransparent model and generally invests in 30-50 high-conviction semiconductor or semiconductor-related companies.
10-year return: 38.02%
Assets under management: $29.9M
Expense ratio: 0.75%
Semiconductor ETFs have been the best performers over the past decade, with SMH achieving an impressive 10-year annualized return of 25%. The dominance of semiconductors over the past decade stems from their widespread application in top-selling tech devices, including personal computers, smartphones, and gaming consoles. In 2023, the outstanding performance of the semiconductor industry is driven by the rise of artificial intelligence, especially with stocks like NVIDIA experiencing a surge of over 230%.
The future performance of semiconductor ETFs will be influenced by various factors, including the overall health of the semiconductor industry, technological advancements, and the growing demand for semiconductor applications in artificial intelligence. As artificial intelligence technology continues to advance, the demand for complex semiconductors to support evolving AI applications is expected to grow continuously.
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