7 Best Semiconductor ETFs to Buy in 2023: The technology sector in the United States of America has surpassed expectations and surged significantly this year, with the technology-heavy Nasdaq-100 index up 37% as of June 27. some important points for 7 Best Semiconductor ETFs to Buy in 2023
As the excitement around artificial intelligence, or AI, has grown, multiple mega-cap tech firms, including Alphabet Inc. (NASDAQ: GOOG, GOOGL), Microsoft Corp. (MSFT), and Meta Platforms Inc. (META), have reported solid quarterly results.
However, these stocks have been outperformed by chipmaker Nvidia Corp. (NVDA). Nvidia, one of the world’s leading semiconductor makers, had its stock price skyrocket by roughly 24% on May 25 following a massive earnings announcement. Management’s advice on growing demand for the company’s chips attracted buyers. let’s we start our 7 Best Semiconductor ETFs to Buy in 2023
7 Best Semiconductor ETFs to Buy in 2023
iShares Semiconductor ETF (SOXX)
“The potential benefits of investing in semiconductor ETFs include coverage to a high-growth sector with strong basic information, diversified across a variety of businesses in the industry, and the opportunity for long-term capital appreciation,” August writes.
Over the last ten years, SOXX has returned an annualised 23.9%, surpassing the overall stock market.
SOXX is one of the most popular semiconductor ETFs on the market, with around $8.8 billion in assets under management, or AUM. Because of its popularity, the ETF has high liquidity, with over 1.4 million shares traded on average over a 30-day period and a 30-day median bid-ask spread of just 0.03%. SOXX follows the ICE Semiconductor Index and has a cost ratio of 0.35%.
Semiconductor Exchange Traded Funds (ETFs) have gained significant popularity among investors, especially those interested in the technology sector. These ETFs offer a unique way to invest in the semiconductor industry, which plays a crucial role in today’s tech-driven world. In this article, we will explore the 7 best semiconductor ETFs to consider for your investment portfolio in 2023.
iShares PHLX Semiconductor ETF (SOXX)
The iShares PHLX Semiconductor ETF (SOXX) is a well-established fund that provides exposure to U.S.-listed semiconductor companies. It tracks the PHLX SOX Semiconductor Sector Index, which includes leading names in the industry. SOXX is known for its comprehensive holdings, offering investors exposure to various subsectors within semiconductors.
Some of the top holdings in SOXX include companies like NVIDIA, Intel, and Texas Instruments. This ETF is a favorite among investors looking for stability and potential growth in the semiconductor sector.
VanEck Vectors Semiconductor ETF (SMH)
The VanEck Vectors Semiconductor ETF (SMH) is another popular choice for investors seeking semiconductor exposure. It tracks the MVIS US Listed Semiconductor 25 Index, which consists of 25 of the largest semiconductor companies in the U.S. SMH is known for its liquidity and the inclusion of both established players and up-and-coming firms.
Investors appreciate SMH’s balanced approach to semiconductor investments, making it a valuable addition to a tech-focused portfolio.
VanEck Semiconductor ETF (SMH)
“Especially when looking for semiconductor ETFs (7 Best Semiconductor ETFs to Buy in 2023), investors should consider aspects such as the ratio of expenses to revenues, the underlying index or the standard, the fund’s holdings and diversification strategy, and the ETF’s historical performance,” says August. “It is also important to assess the fund’s liquidity and trading volume to ensure that it is easy to buy and sell.”
SMH, which has more than $9 billion in AUM and an equal 0.35% cost ratio as SOXX, is an ETF that fits these requirements. This ETF tracks the MVIS US Listed Semiconductor 25 Index and presently has a five-star Morningstar rating, indicating that it has beaten the majority of its peer category on a risk-adjusted basis in the past.
SPDR S&P Semiconductor ETF (XSD)
Most semiconductor ETFs use a market cap-weighted approach, which gives equities with bigger market capitalizations correspondingly higher weights. When a handful of mega-cap semiconductor firms (7 Best Semiconductor ETFs to Buy in 2023)dominate the ETF’s top holdings, this method can lead to concentration risk. To address this, investors might look at XSD, which employs a modified equal-weight index.
XSD delivers more uniform exposure across 38 large-, mid-, and small-cap U.S. semiconductor firms by following the S&P Semiconductor (7 Best Semiconductor ETFs to Buy in 2023) Select Industry Index. Despite its huge market capitalization, Nvidia accounts for only roughly 3% of this ETF. The ETF carries the same 0.35% expense ratio as SMH and SOXX, making it cost competitive.
Semiconductor ETFs are a category of exchange-traded funds that focus on companies involved in the design, manufacturing, and distribution of semiconductors. These ETFs provide a convenient way for investors to gain diversified exposure to the semiconductor sector without the need to invest in individual companies.
XSD: A Brief Overview
The SPDR S&P Semiconductor ETF (XSD) is one of the prominent ETFs in this category. It is designed to track the performance of the S&P Semiconductor Select Industry Index, which includes companies engaged in various aspects of the semiconductor industry. By investing in XSD, you can effectively invest in a basket of these companies, spreading your risk.
The Importance of Semiconductors
Semiconductors are the backbone of the modern world, powering an array of devices, from smartphones to self-driving cars. With technology advancing rapidly, the demand for semiconductors continues to grow, making the industry an appealing investment option.
XSD Holdings and Top Companies
XSD comprises a diversified portfolio of semiconductor companies. Some of the top holdings in XSD include well-known industry giants like NVIDIA, Broadcom Inc., and Micron Technology. These companies play a significant role in driving innovation in the tech world.
First Trust Nasdaq Semiconductor ETF (FTXL)
Most semiconductors ETFs go the extra mile to evaluate possible holdings based on other factors. This is often done to guarantee that the final portfolio fits specified financial health, growth potential, or other requirements. FTXL, which monitors the Nasdaq U.S. Smart Semiconductor (7 Best Semiconductor ETFs to Buy in 2023) Index, is an excellent example. However, its expenditure ratio (0.6%) is greater than that of SOXX, SMH, and XSD.
The FTXL index picks semiconductor firms from the Nasdaq U.S. Benchmark Index and ranks them based on three criteria: trailing 12-month return on assets, trailing 12-month gross income, and momentum in the form of three-, six-, nine-, and twelve-month share price appreciation. Following the ranking of the equities, the worst quartile is removed, and the remaining stocks are weighted based on their trailing 12-month cash flow.
Invesco Dynamic Semiconductors ETF (PSI)
PSI is another five-star Morningstar-rated semiconductor ETF to keep an eye on. This ETF follows the Dynamic Semiconductors (7 Best Semiconductor ETFs to Buy in 2023) Intellidex Index, which, like the index used by FTXL, selects companies using additional screeners. At the present, this involves looking at share price movement, earnings momentum, financial and managerial quality, and value.
PSI currently owns 31 equities, with Nvidia leading the pack with a 6% stake. Broadcom Inc. (AVGO) and Applied Materials Inc. (AMAT) are in second and third position, with 5.5% and 5.2%, respectively. Advanced Micro Devices Inc. (AMD), Nvidia’s major competitor, is now ranked seventh with a 4.5% weighted. The cost ratio for the ETF is 0.55%.
Invesco PHLX Semiconductor ETF (SOXQ)
ETFs with extra filters in their indexes, such as FTXL and PSI, typically incur a higher cost ratio. There is a danger that these higher costs will cut into total results in the long run. SOXQ, which has the lowest expense ratio on our list at 0.19%, is a wonderful alternative to PSI, also provided by Invesco, for cost-conscious investors aiming to prioritise low costs.
SOXQ provides exposure to the 30 biggest U.S. listed semiconductor (7 Best Semiconductor ETFs to Buy in 2023) equities by following the PHLX Semiconductor Sector Index. Nvidia, Broadcom, Intel Corp. (INTC), Texas Instruments Inc. (TXN), and AMD are now among its top holdings. Investors should keep in mind, however, that this ETF is less popular than the preceding alternatives, with only roughly $132 million in AUM.
Direxion Daily Semiconductor Bull 3X Shares ETF (SOXL)
Most of the prior ETFs allow investors to trade options, which can provide investors with increased exposure. Furthermore, investors can buy these ETFs on margin to boost their gains. Investors who do not want to trade options on semiconductor ETFs or leverage their positions with margin can still benefit from SOXL, which has a 0.94% fee ratio.
This leveraged ETF seeks to outperform the ICE Semiconductor (7 Best Semiconductor ETFs to Buy in 2023) Index on a daily basis. SOXL will return 3% if the index rises by 1%. SOXL will decline 3% if the index falls by 1%. Because the leveraged exposure is determined on a daily basis, SOXL is best suited for short-term trading. Long-term SOXL investors may face extremely high volatility and uncertain returns.
1: What are semiconductor ETFs and why should I consider investing in them in 2023?
Semiconductor ETFs, or exchange-traded funds, are investment funds that are designed to track the performance of a specific basket of semiconductor-related companies. These ETFs provide investors with exposure to the semiconductor industry without having to purchase individual stocks
2: Which are the 7 best semiconductor ETFs to consider buying in 2023?
These ETFs have different investment strategies and holdings, so it’s essential to research each one’s specific objectives, expense ratios, and performance history to determine which aligns best with your investment goals.