This year's 82% jump in Nvidia stock is impressive. But it's understandable if you don't want to chase it. Enter semiconductor ETFs.
Semiconductor ETFs, like VanEck Semiconductor, Invesco PHLX Semiconductor and iShares Semiconductor, are the top three actively traded sector ETFs this year, says data from Morningstar Direct. VanEck Semiconductor is up 30.4% this year, blowing away the S&P 500's roughly 9% return. And all three own a healthy helping of Nvidia.
But while these ETFs are gaining from holding Nvidia shares, they also spread their portfolios across dozens of other semiconductor stocks. And that's the appeal, if the leaders in the semiconductor stock rally change.
"Semiconductors are being favorably impacted by global demand for artificial intelligence chips with Nvidia being one of the big beneficiaries," said Todd Rosenbluth, director of research at Vetta Fi. "However, there's favorable tailwinds for the broader industry."
Want More Than S&P 500
You might think simply owning the S&P 500 gives you enough exposure to semiconductors. But that might not be the case.
The information technology sector accounts for 30.2% of the S&P 500. But the semiconductor industry is only 30% of the information technology sector. That means semiconductors are only the second-largest industry in the tech sector after software.
And that's where some of the semiconductor ETFs depart from the S&P 500. The $18 billion-in-assets VanEck Semiconductor ETF, on the other hand, puts nearly 29% of its portfolio just in shares of Nvidia. It loads up an additional 10% in Taiwan Semiconductor. But it also owns 23 other semiconductor stocks. That spreads your exposure beyond just one or two stocks.
It's a similar strategy with the $13 billion-in-assets iShares Semiconductor ETF. But iShares sticks with domestic firms so its No. 2 holding after Nvidia is Advanced Micro Devices at 9.9%.
Semiconductor ETFs Aren't The Same
It's important to note, though, that not all semiconductor ETFs are rallying in unison.
Contrast the VanEck Semiconductor ETF, that's heavily weighted toward large-cap chip stocks, with SPDR S&P Semiconductor ETF. This $1.5 billion ETF, on the other hand, weights all 39 of its positions equally. That means its stake in giant Nvidia is adjusted to roughly equal its stake in smaller firms ETF like Lattice Semiconductor and Monolithic Power Systems.
And that hurts returns in a year like 2024 so far when the giant semiconductor stocks are pulling ahead, Rosenbluth says. The SPDR S&P Semiconductor ETF is up just 3.9% this year. That's roughly a tenth of VanEck Semiconductor's return.
Going Broader Still
Some other sector ETFs aren't semiconductor funds, per se. But they're getting a lift from holding Nvidia.
The $132 million-in-assets Roundhill Generative AI & Technology shows the point. It's up nearly 18% this year. That tops the performance of even some pure-play semiconductor ETFs. Why is it doing so well? It's No. 1 position at nearly 8% of the portfolio is Nvidia. And it's followed by a hefty dose of Microsoft at nearly 7% of the portfolio.
Similarly, the $178 million-in-assets Roundhill Magnificent Seven ETF plows all its portfolio in just the largest S&P 500 stocks. The largest position is a 13.3% stake in Nvidia swaps, or agreements to buy shares in the future. On top of that, the ETF put nearly 9% of its portfolio directly in Nvidia stock.
Such a wide spread of performance by semiconductor ETFs shows "why it matters what's inside the portfolio," Rosenbluth says. "While the industry trends for semiconductors are favorable, the largest companies are performing the best in recent years."
Top-Performing Sector ETFs This Year So Far
Semiconductor funds stand out
| Name | Ticker | YTD % return | Fee |
|---|---|---|---|
| VanEck Semiconductor | 30.37% | 0.35% | |
| Invesco PHLX Semiconductor | 19.81 | 0.19% | |
| iShares Semiconductor | 19.65 | 0.35% | |
| Roundhill Generative AI & Technology | 17.74 | 0.75% | |
| Roundhill Magnificent Seven | 16.23 | 0.29% | |
| iShares Expanded Tech Sector | 16.23 | 0.41% | |
| MicroSectors FANG+ | 13.70 | 0.58% | |
| iShares US Insurance | 13.64 | 0.40% | |
| Global X Robotics & Artfcl Intllgnc | 13.51 | 0.69% | |
| JPMorgan U.S. Tech Leaders | 13.37 | 0.65% |
