A Guide to Semiconductor ETF Investing

·4 min read

Semiconductors have been the most important drivers of the overall growth in technology, given the use of chips in day-to-day life, from cars, electronic gadgets to planes and weapons. The demand will continue to trend higher given the increased digitization in various corners like healthcare, transport, financial systems, defense, agriculture and retail, among others.

The rapid adoption of cutting-edge technology like cloud, Internet of Things, gaming, wearables, VR headsets, drones, virtual reality devices, artificial intelligence, cryptocurrencies, 5G and other advanced information technologies, as well as the solar power industry, should continue to fuel growth. The latest uptake in the use of Artificial Intelligence should also contribute to the semiconductor space.

The CHIPS-Plus bill, dubbed the Chips and Science Act, in the United States is another plus. The bill would provide $54 billion in grants for semiconductor manufacturing and research, tens of billions to support regional technology hubs and a tax credit covering 25% of investments in semiconductor manufacturing through 2026. As such, it will encourage investment in chip manufacturing and spur the innovation and development of other U.S. technologies.

Chip Sales of 2022

The introduction of expensive and new-generation chips has been leading to an enhancement in the product mix for semiconductors. Per Gartner, global semiconductor revenue increased 1.1% in 2022 to total $601.7 billion, up from $595 billion in 2021. The combined revenues of the top 25 semiconductor vendors rose 2.8% in 2022 and made up 77.5% of the market.

“However, by the second half of 2022, the global economy began to slow under the strain of high inflation, rising interest rates, higher energy costs and continued COVID-19 lockdowns in China, which impacted many global supply chains. Consumers also began to reduce spending, with PC and smartphone demand suffering, and then enterprises starting to reduce spending in anticipation of a global recession, all of which impacted overall semiconductor growth,” said Gartner.

Any Wall of Worry?

The electric car behemoth Tesla TSLA recently said that it is using fewer silicon carbide wafers. Since silicon carbide is a great and expensive semiconductor, the latest announcement went against the semiconductor space. In fact, this could be a trend in the EV market in the coming days as many EV makers may follow Tesla’s footsteps. However, this is just the beginning. It would take a whole lot of time for the deployment of silicon carbide to be no longer in use.

ETFs in Focus

iShares Semiconductor ETF SOXX

iShares Semiconductor ETF follows the ICE Semiconductor Index and offers exposure to U.S. companies that design, manufacture and distribute semiconductors. It holds 30 securities in its basket and charges a fee of 35 bps a year from investors.

iShares Semiconductor ETF has amassed $6.95 billion in its asset base and trades in a volume of about 1 million shares a day. The product has a Zacks ETF Rank #3 (Hold) with a High risk outlook.

VanEck Vectors Semiconductor ETF SMH

VanEck Vectors Semiconductor ETF provides exposure to 25 companies involved in semiconductor production and equipment by tracking the MVIS US Listed Semiconductor 25 Index. It has managed assets worth $7.34 billion and charges 35 bps in annual fees and expenses.

VanEck Vectors Semiconductor ETF is heavily traded, with a volume of around 4.3 million shares per day. It has a Zacks ETF Rank #2 with a High risk outlook.

Invesco PHLX Semiconductor ETF SOXQ

Invesco PHLX Semiconductor ETF tracks the PHLX Semiconductor Sector Index, holding 30 stocks in its basket. Invesco PHLX Semiconductor ETF has accumulated $98.9 million in its asset base. It charges 19 bps in annual fees and trades in an average daily volume of 42,000 shares.

SPDR S&P Semiconductor ETF XSD

SPDR S&P Semiconductor ETF offers exposure to the semiconductor segment of the broad technology sector and tracks the S&P Semiconductor Select Industry Index. It holds 40 stocks in its portfolio, with each making up for not more than a 4% share. SPDR S&P Semiconductor ETF has AUM of $1.31 billion and an average daily volume of about 74,000 shares. The ETF charges 35 bps in fees per year and has a Zacks ETF Rank #3 with a High risk outlook.

Invesco Dynamic Semiconductors ETF PSI

Invesco Dynamic Semiconductors ETF tracks the Dynamic Semiconductor Intellidex Index, holding 32 securities in its basket, with each making up less than 5.53% share. The ETF has AUM of $552.9 million and sees a moderate average daily volume of 27,000 shares. Expense ratio is 0.56%. PSI has a Zacks ETF Rank #2 with a High risk outlook.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Tesla, Inc. (TSLA) : Free Stock Analysis Report

Invesco Dynamic Semiconductors ETF (PSI): ETF Research Reports

VanEck Semiconductor ETF (SMH): ETF Research Reports

iShares Semiconductor ETF (SOXX): ETF Research Reports

SPDR S&P Semiconductor ETF (XSD): ETF Research Reports

Invesco PHLX Semiconductor ETF (SOXQ): ETF Research Reports

To read this article on Zacks.com click here.

Zacks Investment Research