Best ETF to Buy: VanEck Semiconductor ETF vs. iShares Semiconductor ETF
Semiconductor stocks have been soaring, led by Nvidia. But that's been far from the only winner -- other popular names like Taiwan Semiconductor, Advanced Micro Devices, and Broadcom have all surged since the start of 2023, shortly after ChatGPT was launched.
If you want exposure to a group of stocks, a smart way to do so is through an exchange-traded fund (ETF). These funds trade like stocks but hold a range of companies instead of just one. An ETF is the easiest way to quickly diversify your holdings across a sector like semiconductors.
The two largest semiconductor ETFs are the VanEck Semiconductor ETF (NASDAQ: SMH) and the iShares Semiconductor ETF (NASDAQ: SOXX). Let's compare the two to see which one is the better option.
Image source: Getty Images.
A choice of two types of semiconductor ETFs
You might think the composition of these two ETFs would be the same, but that's not the case. Unlike rival index funds, which have similar compositions due to tracking the same underlying index, these two ETFs are based on different indexes.
The VanEck Semiconductor ETF tracks the MVIS US Listed Semiconductor 25 Index, while the iShares version follows the NYSE Semiconductor Index.
As a result, there are significant differences between their five biggest holdings, as you can see from this chart.
| VanEck ETF | iShares ETF |
|---|---|
| Nvidia:19.5% | Broadcom: 8.7% |
| Taiwan Semiconductor: 12.5% | Advanced Micro Devices: 8.7% |
| Broadcom: 8.1% | Nvidia: 8% |
| Texas Instruments: 5.1% | Qualcomm: 6.2% |
| Advanced Micro Devices: 4.9% | Texas Instruments: 6.1% |
Source: company websites. Data as of 9/20/24.
The VanEck ETF has more than double the exposure to Nvidia that the iShares ETF does. Importantly, the iShares ETF doesn't own foreign stocks, such as Taiwan Semiconductor (TSMC) and the Netherlands-based ASML, two of the top semiconductor stocks. Arguably, that gives the VanEck ETF an advantage. While TSMC is the second-largest holding in the VanEck fund, ASML is the sixth-largest.
The VanEck ETF holds 26 stocks, while the iShares ETF owns 30.
The performance comparison
Based on the chart above, it probably won't surprise you that the VanEck Semiconductor ETF has outperformed the iShares Semiconductor ETF recently since it has greater exposure to Nvidia.
In the 10 years before the start of the generative AI boom at the beginning of 2023, the iShares ETF outperformed the VanEck, as you can see from the chart below.
SMH data by YCharts.
But since then, the VanEck ETF has dominated, dating back to 2013.
SMH data by YCharts.
Since the beginning of 2023, the difference between the two funds is even clearer.
SMH data by YCharts.
Based on recent performance, it seems like the VanEck ETF has the edge here.
Other metrics to consider
While current holdings and past performance are probably the two most important factors for judging an ETF to buy, other key metrics are worth considering.
First, the expense ratio, which measures the cost of holding an ETF, is always important when investing in them. The VanEck ETF and the iShares ETF have the same ratio: 0.35%.
Semiconductor stocks aren't typically known for high yields, but dividends can make a difference to some investors. Here, the VanEck ETF has a 0.49% 30-day yield, an estimate of annual dividends, while the iShares ETF's yield is 0.62%.
Lastly, the VanEck ETF is the bigger of the two funds by net assets ($23 billion), showing it has attracted more investment than the iShares ETF ($15.3 billion).
Which ETF is the winner?
Based on its recent performance as well as its holdings, the VanEck Semiconductor ETF has the edge over the iShares Semiconductor ETF. The increased exposure to Nvidia should continue to be an advantage because that company is dominating the market for AI chips, and the exposure to foreign companies like TSMC and ASML is a plus since those two stocks are well-positioned for growth.
Both ETFs are good candidates to outperform, but the VanEck is the better bet right now.
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Jeremy Bowman has positions in Broadcom. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, Texas Instruments, and iShares Trust-iShares Semiconductor ETF. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy.
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