Are semiconductor ETFs a good investment?
VanEck
"The potential benefits of investing in semiconductor ETFs include exposure to a high-growth sector with strong fundamentals, diversification across multiple companies in the industry and the potential for long-term capital appreciation," says Sean August, CEO of August Wealth Management Group.
While there were solid returns in the first quarter of 2024, traders and industry pundits feel that the semiconductor party is dimming. Semiconductor industry investors aren't complaining about portfolio performance – not when chip stocks continue to generate solid returns for investors in the first quarter of 2024.
- Liquidity Risk.
- Equity Market Risk.
- Industry or Sector Concentration Risk.
| ETF | Assets Under Management | Expense Ratio |
|---|---|---|
| Vanguard Information Technology ETF (VGT) | $70 billion | 0.10% |
| VanEck Semiconductor ETF (SMH) | $16.3 billion | 0.35% |
| Invesco S&P MidCap Momentum ETF (XMMO) | $1.6 billion | 0.34% |
| SPDR S&P Homebuilders ETF (XHB) | $1.8 billion | 0.35% |
Investor Takeaway
While the ETF has been on a tear, it's not too late to consider investing in SOXX, and there is room for more upside ahead, as its holdings have strong growth prospects, and many are less expensive than one would expect.
Its buoyant future outlook isn't fully reflected in the current share price yet, which means it's not too late to buy ON. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed investment decision.
- VanEck Semiconductor ETF (SMH).
- iShares Semiconductor ETF (SOXX).
- SPDR S&P Semiconductor ETF (XSD).
- First Trust Nasdaq Semiconductor ETF (FTXL).
- Invesco Dynamic Semiconductors ETF (PSI).
- Invesco PHLX Semiconductor ETF (SOXQ).
The increasing cost of manufacturing chips (Financial Risk): The cost of manufacturing chips has been increasing in recent years, due to factors such as inflation and the cost of component parts. The shortage of skilled workers (Human Capital Risk): This is a highly specialized industry, and the talent pool is small.
From AI to 5G and Internet of Things (IOT), semiconductor stocks fuel tech innovation, long-term growth, and can offer significant investment returns.
Should I buy SOXX?
Is SOXX a Buy, Sell or Hold? SOXX has a conensus rating of Moderate Buy which is based on 25 buy ratings, 6 hold ratings and 0 sell ratings.
Is SMH Stock a Buy, According to Analysts? Turning to Wall Street, SMH earns a Strong Buy consensus rating based on 21 Buys, five Holds, and zero Sell ratings assigned in the past three months. The average SMH stock price target of $223.74 implies 8.0% upside potential from current levels.
The importance of semiconductors lies in their ability to process and transmit information, which has driven global innovation and made it a major industry in the global economy. Companies involved in semiconductor design, manufacture, and distribution are among the largest on global stock markets.
| ETF | Ticker | Assets Under Management (AUM) |
|---|---|---|
| Vanguard S&P 500 ETF | (NYSEMKT:VOO) | $435.2 billion |
| Invesco QQQ Trust | (NASDAQ:QQQ) | $259.6 billion |
| Vanguard Growth ETF | (NYSEMKT:VUG) | $118.8 billion |
| iShares Core S&P Small-Cap ETF | (NYSEMKT:IJR) | $79.8 billion |
You expose your portfolio to much higher risk with sector ETFs, so you should use them sparingly, but investing 5% to 10% of your total portfolio assets may be appropriate. If you want to be highly conservative, don't use these at all.
Major Players In The Semiconductor Industry. NVIDIA Corp (NASDAQ:NVDA), Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSMC), and Broadcom Inc. (NASDAQ:AVGO) are some of the most prominent names in the semiconductor industry.
SPDR S&P Semiconductor ETF is an excellent option for investors seeking to outperform the Technology ETFs segment of the market. There are other ETFs in the space which investors could consider as well.
- #1 HCL TECHNOLOGIES.
- #2 BHARAT ELECTRONICS.
- #3 VEDANTA.
- #4 CG POWER & INDUSTRIAL.
- #5 TATA ELXSI.
| Ticker | Company | Performance (1 Year) |
|---|---|---|
| NVDA | NVIDIA Corp | 242.13% |
| AVGO | Broadcom Inc | 112.17% |
| LRCX | Lam Research Corp. | 100.29% |
| MU | Micron Technology Inc. | 98.87% |
What is the semiconductor stock market outlook for 2024?
We believe the semiconductor industry is expected to continue to rebound significantly at a notable growth rate in 2024. The resurgence is driven by increasing demand from various industries and applications.
Chip sales look to bounce back in 2024
The infamously cyclical semiconductor industry had a challenging year in 2023, the seventh downturn since 1990, with sales expected to be down 9.4% (to US$520 billion) for the year.
Vanguard does not have a semiconductor ETF in its lineup, but there are Vanguard funds with semiconductor stocks included as holdings within a broader tech sector objective. For example, the Vanguard Information Technology ETF (VGT) includes large chip makers NVIDIA Corp and American Micro Devices, Inc.
| FUND(TICKER) | EXPENSE RATIO | 10-YEAR RETURN AS OF APRIL 1 |
|---|---|---|
| Vanguard Growth ETF (VUG) | 0.04% | 15.07% |
| iShares Russell 1000 Growth ETF (IWF) | 0.19% | 15.78% |
| iShares S&P 500 Growth ETF (IVW) | 0.18% | 14.34% |
| Schwab U.S. Large-Cap Growth ETF (SCHG) | 0.04% | 15.95% |
| Symbol | Name | 5-Year Return |
|---|---|---|
| URA | Global X Uranium ETF | 22.25% |
| XLK | Technology Select Sector SPDR Fund | 22.05% |
| IYW | iShares U.S. Technology ETF | 21.61% |
| XHB | SPDR S&P Homebuilders ETF | 20.89% |
