5 Best Semiconductor ETFs to Buy in 2024

The semiconductor manufacturing industry is integral to the development of many emerging technologies, such as virtual reality metaverses and artificial intelligence. The U.S. semiconductor sector alone has risen by more than 300% in the past 5 years, and the global market cap of the industry is projected to rise a further 140% by the year 2029.

Exchange-traded funds (ETFs) that can provide diversified exposure to the semiconductor industry could therefore be a strong choice for tech-savvy investors. This article will explore the top 5 semiconductor ETFs to buy in 2024, diving into each fund’s unique characteristics and highlighting key benefits for investors.

Here’s our list of the 5 best semiconductor ETFs in 2024:

1. VanEck Vectors Semiconductor ETF (SMH)
2. iShares PHLX Semiconductor ETF (SOXX)
3. SPDR S&P Semiconductor ETF (XSD)
4. Invesco Dynamic Semiconductors ETF (PSI)
5. iShares Semiconductor ETF (IGV)

What are the most important considerations when deciding which semiconductor ETF to buy?

The semiconductor industry is integral to tech more broadly speaking, and it involves a global supply chain that has several manufacturing hotspots around the world.

Chip designers in the USA and manufacturers in Taiwan can be seen as the true powerhouses in the semiconductor industry, and their influence continues to grow year-on-year due to the rising demand for computational power.

ETFs can be a great way to gain broad exposure to the semiconductor market. When selecting a single fund to invest in, you may want to consider the following factors:

1. Portfolio distribution — Each fund allocates capital to the companies in the portfolio slightly differently, including various selection criteria and market cap weighting systems
2. Geographical focus — Semiconductor companies may be influenced by geopolitical changes due to the location of manufacturing hotspots
3. Past performance — A look at the historical performance of the fund can provide some insight into expected future returns

Comparing and contrasting the 5 best semiconductor ETFs to buy in 2024

The semiconductor sector has been growing rapidly in recent years. For investors seeking to gain a stake in the future of the industry, the following ETFs can provide diversified exposure.

1. VanEck Semiconductor ETF (SMH)

VanEck Semiconductor ETF (SMH) seeks to track the performance of the MVIS US Listed Semiconductor 25 Index. The portfolio includes industry-leading semiconductor companies based in both U.S. and global markets, distributing more capital to the largest semiconductor companies through a market cap weighting system.

By providing exposure to a diversified portfolio of semiconductor companies, the ETF seeks to spread risk across firms in the industry that may occupy different international markets. SMH, like many other ETFs, is passively managed — the fund seeks to replicate the performance of an underlying index rather than actively selecting individual stocks based on their potential for price appreciation.

SMH is one of the best performing semiconductor ETFs, outperforming its underlying index on certain time frames in addition to the other funds that are included on this list. In January 2024 alone, SMH climbed +10% from its yearly open price. It’s a similar story over longer time horizons, with SMH almost quadrupling in value over the past 5 years.

Here is the historical performance of SMH:

2. iShares PHLX Semiconductor ETF (SOXX)

iShares PHLX Semiconductor ETF (SOXX) is a fund that aims to replicate the performance of the PHLX SOX Semiconductor Sector Index. This index includes companies that are involved in the design, distribution, and manufacture of semiconductors, providing exposure to a diversified portfolio that can spread risk across various firms within the semiconductor industry.

SOXX is not limited to semiconductor companies in a certain geographical location, but it does only track companies that are traded on U.S. stock exchanges. As a result, the fund is skewed towards U.S.-based companies with almost 90% of the allocation being companies registered in and operating from the United States. Some notable exceptions to this include Taiwanese multinational corporations among others.

Here is the historical performance of SOXX:

3. SPDR S&P Semiconductor ETF (XSD)

SPDR S&P Semiconductor ETF (XSD) seeks to track the performance of the S&P Semiconductor Select Industry Index. This index includes companies in the semiconductor sub-industry of the S&P Total Market Index.

XSD employs an equal-weighted methodology, meaning that individual stocks within the index are given equal weight, rather than being weighted by market capitalization. This approach can lead to a more balanced representation of smaller and larger companies in the portfolio.

XSD has performed reasonably well over recent years when compared against other semiconductor ETFs. A +190% increase over the past 5 years reflects a growing demand for semiconductors around the world, in line with advancements in technology such as virtual reality metaverses and artificial intelligence where semiconductors are integral to development.

Here is the historical performance of XSD:

4. Invesco Dynamic Semiconductors ETF (PSI)

Invesco Dynamic Semiconductors ETF (PSI) aims to replicate the performance of the Dynamic Semiconductor Intellidex Index. This index evaluates companies in the semiconductor industry based on a variety of investment criteria, such as price momentum, earnings momentum, and valuation.

PSI mainly includes large cap stocks, as the average value of the companies in the portfolio is $138 billion. Like other semiconductor ETFs, PSI pays quarterly dividends to its shareholders — currently offering payments of $0.32 per share when annualized.

Although returns are likely to vary according to the condition of the semiconductor market, PSI has performed consistently well over recent years and has risen in value at the beginning of 2024. Its YTD price increase of 2.83% is highly competitive relative to other semiconductor ETFs.

Here is the historical performance of PSI:

5. iShares Semiconductor ETF (IGV)

iShares Semiconductor ETF (IGV) offers a broad focus that spans companies in both the software and semiconductor sectors. It aims to track the performance of the S&P North American Technology Software Index, which includes a significant allocation to companies that are involved in semiconductor design.

Despite not being wholly focused on the semiconductor market, IGV provides exposure to a diversified portfolio of software and semiconductor companies that can help to spread risk across different kinds of technology firms. Investors seeking a more balanced investment portfolio that goes beyond the semiconductor industry may find IGV to be an appealing choice.

Like other semiconductor ETFs, IGV has performed strongly in recent years. Its diversification beyond the semiconductor sector means that it has had reduced exposure to the market’s recent upside, but this also works in the inverse direction — any volatility to the downside in the semiconductor industry may be offset by more stable prices in software.

Here is the historical performance of IGV:

The bottom line

The semiconductor sector is integral to technological progress. Steady improvements to processing speeds have fed into the rapid development of brand-new technologies that could change the virtual landscape over the coming years — most notably in the context of gaming, virtual reality, and artificial intelligence.

As a result, the top semiconductor stocks have performed very strongly over recent years. To gain broad exposure to the semiconductor market, here’s a recap of our 3 best semiconductor ETFs to buy:

1. VanEck Semiconductor ETF (SMH)
2. iShares PHLX Semiconductor ETF (SOXX)
3. SPDR S&P Semiconductor ETF (XSD)

To learn more about other investment options for exchange-traded funds, check our article on the 6 best monthly dividend ETFs in 2024.