In the dynamically changing landscape of technology, semiconductor companies have become pivotal players in driving innovation and progress across various industries. As a result, investments in semiconductor exchange-traded funds (ETFs) have gained popularity among investors looking to capitalize on the growth potential of this sector. Among the various semiconductor ETFs available, two stand out – the VanEck Vectors Semiconductor ETF (SMH) and the iShares PHLX Semiconductor ETF (SOXX). While both ETFs focus on semiconductor companies, there are notable differences in their performance and holdings that have led to SMH holding up better than SOXX in recent times.
One key factor contributing to SMH’s resilience compared to SOXX is its diversified holdings. SMH is known for holding a broader and more balanced portfolio of semiconductor stocks, which helps mitigate risks associated with individual companies. This diversification shields investors from significant losses that may occur if one or a few holdings underperform. In contrast, SOXX has a more concentrated portfolio, with a higher exposure to a few large semiconductor companies. This concentrated approach can result in more volatility, exposing investors to greater market fluctuations.
Another factor that sets SMH apart from SOXX is its exposure to a wider range of semiconductor subsectors. SMH includes companies involved in various semiconductor segments, such as memory, fabless semiconductor manufacturing, and integrated device manufacturers. This diversified exposure allows SMH to capture growth opportunities across different areas of the semiconductor industry. On the other hand, SOXX has a more limited focus, primarily holding companies engaged in specific subsectors like equipment and semiconductor design. This narrower focus can limit the growth potential of SOXX compared to SMH.
Additionally, the size and liquidity of SMH play a role in its outperformance relative to SOXX. SMH is the larger of the two ETFs, with more assets under management and higher average trading volumes. This greater size and liquidity provide SMH with better market access and the ability to execute trades more efficiently. In contrast, SOXX’s smaller size and lower liquidity can result in wider bid-ask spreads and higher trading costs, potentially impacting investor returns.
Furthermore, the geographical exposure of SMH and SOXX also differs, contributing to their respective performance outcomes. SMH has a more significant presence of international semiconductor companies in its portfolio, providing exposure to global markets and diversifying risk. In comparison, SOXX has a higher concentration of US-based companies, which may expose investors to risks associated with domestic market fluctuations and geopolitical factors.
In conclusion, the tale of these two semiconductor ETFs – SMH and SOXX – highlights the importance of considering factors such as portfolio diversification, subsector exposure, size and liquidity, and geographical distribution when making investment decisions. While both ETFs offer exposure to the semiconductor industry, SMH’s diversified holdings, broader subsector coverage, larger size, and international exposure have enabled it to hold up better than SOXX in recent times. Investors seeking to capitalize on the growth potential of the semiconductor sector may find SMH to be a more resilient and well-rounded option compared to its counterpart, SOXX.
