Top Semiconductor ETFs to Watch Amid a Global Chip Shortage

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The COVID-19 pandemic has created major supply chain disruptions across the world, mainly impacting semiconductor companies and industries that are reliant on microchips, such as automobile and consumer electronics. It is estimated that semiconductors are critical input for more than 300 downstream economic sectors that account for over 26 million U.S. workers.

Here's an overview of the broader industry dynamics as well as the top exchange-traded funds (ETFs) that provide an opportunity to participate in this sector.

According to the SIA report, the U.S. semiconductor industry is a leader in chip design with U.S. fabless firms accounting for roughly 60% of all global fabless firm sales. However, when it comes to manufacturing, the U.S. share of global semiconductor manufacturing capacity is just 12%, much lower than its share of 37% in 1990. The shortage crisis has exposed these numbers and the U.S. government has started to take some steps to better prepare for future demand. In June, the Senate passed the U.S. Innovation and Competition Act (USICA) with $52 billion in funding for the CHIPS for America Act. This has been complemented by initiatives taken by companies operating in this line of business.

Intel established a new standalone business unit called the Intel Foundry Services (IFS). In addition, Intel announced plans for its facilities in Arizona and New Mexico, which together represent a $23.5 billion investment to drive innovation and increase semiconductor manufacturing. In August, the U.S. Department of Defense awarded Intel an agreement to provide commercial foundry services in the first phase of its multi-phase Rapid Assured Microelectronics Prototypes - Commercial (RAMP-C) program.

Micron Technology (MU), the only U.S.-based manufacturer of memory chips, committed more than $150 billion globally over the next decade to focus on leading-edge memory manufacturing and research and development (R&D), including a potential U.S. fab expansion. Furthermore, in October, GlobalFoundries (GFS), the third-largest semiconductor manufacturing, listed on the Nasdaq Stock Exchange and raised nearly $2.6 billion in its initial public offering (IPO). The company plans to spend around $1.5 billion on capital expenditure to increase capacity to match demand.

Top semiconductor ETFs to watch

Launched in 2001, the iShares PHLX Semi Semiconductor ETF (SOXX) is a U.S.-centric fund that provides exposure to companies that design, manufacture and distribute semiconductors. In June 2021, SOXX began to track the ICE Semiconductor Index. Prior to this, it was tracking the PHLX Semiconductor Sector Index. With assets under management of $9.02 billion, it is the biggest ETF in this space. It maintains a portfolio of 30 stocks from the semiconductor and semiconductor equipment sectors. The ETF has an expense ratio of 0.43% and has reported 38.61% year-to-date in returns. The top ten holdings add up to almost 56.93% of the portfolio and include the following names:

VanEck Vectors Semiconductor ETF (SMHis the second-largest ETF within the space in terms of assets under management. The fund, which was launched in 2011, tracks the MVIS U.S. Listed Semiconductor 25 Index, which is a modified market cap-weighted index comprising of the largest and most liquid U.S.-listed companies involved in semiconductor production and equipment. The fund holds a compact portfolio of 25 stocks with a geographical exposure of 73.5% to the U.S., followed by 14.8% to the Taiwan region and close to 10% to the Netherlands. The fund has $6.78 billion in assets under management with 0.35% as the expense ratio. It has posted 37.85% returns year-to-date. The top stock holdings have an allocation of approximately 68% and it includes names such as:

  • Taiwan Semiconductor (TSM)
  • Nvidia (NVDA)
  • ASML Holding (ASMLF)
  • Advanced Micro Devices (AMD)
  • Qualcomm (QCOM)
  • Applied Materials (AMAT)
  • Broadcom (AVGO)
  • Analog Devices (ADI)
  • Texas Instruments (TXN)
  • Micron Technology (MU)

The third-biggest regular ETF in this space (eliminating leveraged and inverse ETFs) is the SPDR S&P Semiconductor ETF (XSD), which tracks the S&P Semiconductors Select Industry Index. The ETF is designed to replicate the performance of the S&P Semiconductor Select Industry Index, which is a 40-stock equal-weighted index. The ETF provides an unconcentrated industry exposure across large-, mid- and small-cap stocks within the semiconductor segment. The fund was launched in 2006 and has $1.47 billion in assets under management. The fund has an expense ratio of 0.35% and has delivered 42.69% year-to-date in returns. The fund has around 32.91% in the top 10 stocks, which include:

  • Wolfspeed (WOLF)
  • SunPower (SPWR)
  • Silicon Laboratories (SLAB)
  • Synaptics (SYNA)
  • Advanced Micro Devices (AMD)
  • Xilinx (XLNX)
  • Nvidia (NVDA)
  • Lattice Semiconductor (LSCC)
  • MaxLinear (MXL)
  • Ambarella (AMBA)

The ETF’s current top holding officially changed its name to Wolfspeed (WOLF) from Cree, Inc. in October, positioning itself as a pure-play global semiconductor powerhouse. The change is a result of a massive four-year transformation, which included divestiture and reworking of its core strategy.

The two regular ETFs from this space are Invesco Dynamic Semiconductors ETF (PSI) and First Trust Nasdaq Semiconductor ETF (FTXL).

Other than the above five ETFs tracking the semiconductor industry, there are four leveraged and inverse ETFs offered to investors. Direxion Daily Semiconductor Bull 3x Shares (SOXL) is the third-largest ETF within the semiconductor space and the largest leveraged ETF with an asset under management of $4.81 billion. SOXL seeks daily investment results of three times the performance of the ICE Semiconductor Index. 

Disclaimer: The author has no position in any stocks mentioned. Investors should consider the above information not as a de facto recommendation, but as an idea for further consideration. The report has been carefully prepared, and any exclusions or errors in reporting are unintentional. Details on projects based on press releases and reports. The ETF specific information such as AUM and holdings is as on November 15, 2021. Leveraged and Inverse ETFs are much riskier than regular ETFs.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Prableen Bajpai

Prableen Bajpai is the founder of FinFix Research and Analytics which is an all women financial research and wealth management firm. She holds a bachelor (honours) and master’s degree in economics with a major in econometrics and macroeconomics. Prableen is a Chartered Financial Analyst (CFA, ICFAI) and a CFP®.

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