Generating returns that outpace the illustrious S&P 500 can be likened to unearthing a diamond in a crowded mine. While stocks like Nvidia and Tesla dazzle with extraordinary gains, the harsh reality is that numerous others languish in mediocrity or even decline. Thus, those who manage to merely match the index’s performance are hailed as victors in the unforgiving arena of investing.
Despite the formidable reputation of the S&P 500, there exist rare beasts in the financial jungle known as exchange-traded funds (ETFs) that have bested this Goliath. One such ETF specializes in the realm of semiconductor stocks, offering investors an alluring opportunity to ride the waves of technological advancement.
Exploring the VanEck Semiconductor ETF
The VanEck Semiconductor ETF (NASDAQ: SMH) is a treasure trove comprising 26 companies that collectively span the entire spectrum of semiconductor design and manufacturing. Born into existence in December 2011, this ETF boasts a storied history that has weathered the cyclic whims of the industry, cementing its position as a stalwart performer.
The landscape of the semiconductor industry has metamorphosed since the fund’s inception, with the ascent of smartphones and technologies like artificial intelligence (AI) altering the competitive terrain. Through this technologic evolution, the VanEck Semiconductor ETF has routinely eclipsed the S&P 500’s returns by a substantial margin.
The ETF’s star has risen notably in the past year, with total returns nearly tripling those of the index, even amidst a recent downturn in chip stocks. Extending the horizon to a decade amplifies the lead of the VanEck ETF over the S&P 500.
SMH total return level, data by YCharts.
The Key to VanEck Semiconductor ETF’s Success
Besides its proactive and disciplined management, the ETF owes its triumph to a daring strategy of investing heavily in a select cadre of companies poised to drive user productivity to new echelons.
Foremost among its holdings is Nvidia, constituting just over 20% of the fund. At the vanguard of AI-enabled chips, Nvidia basks in the glow of triple-digit revenue growth in recent quarters, a boon that cascades down to VanEck’s stakeholders.
Following closely is Taiwan Semiconductor Manufacturing (TSMC), Nvidia’s primary fabricator, renowned for churning out the world’s most cutting-edge chips for a vast clientele. With a dominating 61% share in third-party chip manufacturing, TSMC wields formidable influence in the industry.
The ETF’s third-largest stake rests with Broadcom at 8%, alongside other titans like Qualcomm, AMD, and Intel, all major clients of the indomitable TSMC.
VanEck’s judicious investment ethos arguably justifies its expense ratio of 0.35%, significantly higher than popular S&P 500 ETFs like the SPDR S&P 500 ETF Trust and Vanguard S&P 500 ETF Trust, which boast meager expense ratios of 0.09% and 0.03%, respectively.
Despite the cost disparity, VanEck’s returns dwarf the 0.37% average expense ratio as corroborated by Morningstar in 2022, making the expense a negligible concern for prospective investors.
Considering the VanEck Semiconductor ETF
The VanEck Semiconductor ETF beckons with superior returns sans exorbitant costs or undue hazards. While a 26-stock ETF focused on a single industry may harbor more risk than its diversified S&P 500 counterparts, the chip sector’s historical penchant for high returns coupled with prudent diversification within the ETF mitigates the perils of concentrated investments.
Hence, the VanEck Semiconductor ETF emerges as a beacon in the realm of investments, where a calculated embrace of risk could pave the way for substantially augmented returns.
Is Investing in VanEck Semiconductor ETF Right for You?
Prior to diving into the pool of VanEck Semiconductor ETF investments, it behooves one to bear in mind the discerning insights presented here:
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