The Best Semiconductor ETFs to Power Your Portfolio in 2022
Chipmakers have been one of the strongest stock market segments over the last 10 years. But a recent pullback is creating favorable entry points to invest in the top chipmaking companies in the world. Instead of picking individual stocks, buying the best semiconductor ETFs will give you exposure to the sector while reducing risk.
Since the pandemic hit, chips are in high demand, with most activity moving online. Chips are needed for everything from data storage (cloud) to individual devices to power the increase in online activity.
Furthermore, new technology like 5G and self-driving also requires chips to enable them. As a result, a shortage of these powerful devices is affecting everything from tech stocks to automakers.
To capture your share of the high-flying industry, here are the best semiconductor ETFs to power up your portfolio this year.
The Best Semiconductor ETFs
To meet the growing demand for semis, companies are scrambling to up their production. Not only that, but governments are now stepping in to make sure the resources are available to meet demand.
Global semiconductor sales grew over 23% last year, reaching a new record of almost $50 billion in November. That said, the U.S Senate passed the Innovation and Competition Act providing funds to support the semi industry. The funds will be used for manufacturing, R&D, and improving the supply chain in the U.S.
With this in mind, here are the best semiconductor ETFs to own in 2022.
No. 1 iShares Semiconductor ETF (SOXX)
- Net Assets: 8.6B
- Expense Ratio: 0.43%
The largest semiconductor by assets, the iShares Semiconductor ETF is also one of the most closely watched by investors. The ETF is up over 288% in the past 5 years with a strong portfolio of concentrated holdings.
Having said this, SOXX looks to track the ICE Semi Index. The ETF’s top holdings by weight currently include:
- Broadcom (Nasdaq: AVGO) – 9.27%
- Qualcomm (Nasdaq: QCOM) – 8.53%
- Nvidia (Nasdaq: NVDA) – 6.57%
- Intel Corp (Nasdaq: INTC) – 6.24%
- Advanced Micro Devices (Nasdaq: AMD) – 4.53%
- Marvell Technology (Nasdaq: MRVL) – 4.40%
- Taiwan Semi Manufacturing (NYSE: TSM) – 4.32%
- Micron (NYSE: MU) – 4.29%
- KLA Corp (Nasdaq: KLAC) – 4.18%
- Applied Material (Nasdaq: AMAT) – 4.11%
Although the ETF has 30 holdings, the portfolio is heavily concentrated, with the top ten accounting for over 56% of the fund. That said, the fund is outperforming its peers with its targeted approach.
No. 2 VanEck Semiconductor ETF (SMH)
- Net Assets: 7.8B
- Expense Ratio: 0.35%
The VanEck Semi ETF is another concentrated portfolio similar to SOXX. Compared to SOXX, SMH is slightly smaller and looks to track the MVIS U.S Semi Index.
Moreover, the ETF is also a stock market leader with 286% in returns for investors since 2017. SMH’s top holdings include the following.
- Taiwan Semi Manufacturing: 9.71%
- Nvidia: 9.50%
- Broadcom: 5.68%
- Qualcomm: 5.03%
- Intel Corp: 5%
- Advanced Micro Devices: 4.98%
- ASML Holding (Nasdaq: ASML): 4.98%
- Micron: 4.90%
- Texas Instruments (Nasdaq: TXN): 4.82%
- LAM Research Corp (Nasdaq: LRCX): 4.56%
As you can see, SMH includes many of the same companies in its top ten. But there are a few standouts, with TSM taking the top spot, making up about 10% of the portfolio.
No. 3 SPDR S&P Semi ETF (XSD)
- Net Assets: 1.4B
- Expense Ratio: 0.35%
Unlike the others on this list, XSD is an unconcentrated portfolio, meaning less exposure to single stocks. Instead, the fund has more broad exposure and tracks the S&P Semi Select Industry Index.
With this in mind, the strategy is working well with over 254% in returns since 2017. Yet in the past year, XSD is trailing its peers with less exposure to large cap stocks. The ETFs top holdings are currently:
- Cirrus Logic (Nasdaq: CRUS): 3.05%
- Universal Display Corp (Nasdaq: OLED): 3.01%
- Intel Corp: 2.98%
- Micron: 2.97%
- Qualcomm: 2.95%
- SMART Global Holdings (Nasdaq: SGH): 2.89%
- Broadcom: 2.86%
- Power Integrations (Nasdaq: POWI): 2.84%
- Texas Instruments: 2.83%
- NXP Semiconductors (Nasdaq: NXPI): 2.80%
You can see a few notable differences right off the bat, with Cirrus and Universal Display being the top holdings. As a result, it can allow investors to gain exposure to companies they might not otherwise consider.
Keep reading for more info on semiconductor ETFs.
Best Inverse & Leveraged ETFs
Investing in ETFs can help you invest in specific stock market areas while earning a return as the industry grows. But if you are looking for a higher risk, higher reward, you can try inverse (short) and leveraged ETFs.
Short ETFs will earn a return when the assets its tracking loses value. For example, the ProShares UltraShort Semi ETF (SSG) looks to return the inverse (2X) of the daily performance of the Dow Jones Semi Index.
Leveraged ETFs, on the other hand, helps multiply returns. For instance, the Direxion Daily Semi Bull 3X (SOXL)Shares ETF looks to return 300% (3X) of the daily performance of the ICE Semi Index.
These types of options can also help you hedge positions. If your portfolio consists of mostly chipmakers, you can buy a short semi ETF when the sector gets overheated to help protect your account from drawdowns.
Investing In Semiconductor ETFs: What To Know
Although semi stocks are underperforming the market this year, computers chis are in higher demand than ever. New industries like 5G and the metaverse are expecting to continue ramping up while requiring more power.
The semi-industry is experiencing double-digit growth in every region, with 25.6% overall growth in 2021. And the demand isn’t expected to slow anytime soon, with experts predicting another 8.8% this year.
As technology plays a bigger role in society, chipmakers are trying to keep up with the demand. But supply chain issues are creating shortages in everything from new cars to smartphones. In fact, research from Morgan Stanley shows 92% of businesses are being affected.
Luckily, businesses and governments are working together to improve the situation. Although the shortage will likely continue this year, the situation is improving while funding flows into the industry.
More importantly, chipmakers are more critical than ever. They are powering the future and continue providing value to society. Without them, the exciting new tech would not be possible.
With this in mind, these are the best semiconductor ETFs for you to grab your share of the growth. Rather than picking single stocks, invest ETFs to grow along with the industry.
About Pete Johnson
Pete Johnson is an experienced financial writer and content creator who specializes in equity research and derivatives. He has over ten years of personal investing experience. Digging through 10-K forms and finding hidden gems is his favorite pastime. When Pete isn’t researching stocks or writing, you can find him enjoying the outdoors or working up a sweat exercising.