Forget the Nasdaq — Buy This Magnificent ETF Instead


This ETF is up more than 48% so far in 2024.

The Nasdaq Composite index is up 18% year to date, making it the top-performing major index this year. Yet, while the Nasdaq’s gain is impressive, there are better year-to-date returns out there, if you know where to look.

Today, I want to cover an investment that has nearly tripled the Nasdaq’s impressive year-to-date return: the VanEck Semiconductor ETF (SMH 0.12%). Let’s dive right in.

Image source: Getty Images.

What is the VanEck Semiconductor ETF?

The VanEck Semiconductor ETF is an index-based exchange-traded fund that tracks the 25 largest American-listed stocks within the semiconductor industry.

It has holdings in several companies that span the semiconductor ecosystem: Nvidia, AMD, and Intel are chip designers that make central processing units (CPUs) and graphics processing units (GPUs). Taiwan Semiconductor Manufacturin is the world’s leading foundry, a company that makes semiconductors on behalf of chip designers. Meanwhile, equipment manufacturers like ASML make complex machines that are used in foundries to produce semiconductors.

Symbol Company Name Percentage of Assets
NVDA Nvidia 20.4%
TSM TSMC 12.9%
AVGO Broadcom 7.7%
AMD Advanced Micro Devices 5%
ASML ASML 4.8%

While all of the ETF’s holdings are listed on American exchanges, some companies are internationally based, such as TSMC and ASML. As a result, about 80% of the fund’s holdings are American companies, while the remaining 20% are foreign. Over 99% of the holdings are large-cap stocks, meaning they have a market capitalization of $10 billion or more.

Turning to costs, the VanEck ETF has an expense ratio of 0.35%. This means that investors pay $35 a year in fees for every $10,000 investment in the fund. While those fees are competitive with most ETFs, they are far from the lowest fees around. For example, some other index-linked ETFs charge less than 0.10%, or $10 a year for every $10,000 investment.

How the VanEck Semiconductor ETF has performed

What has truly set this ETF apart over the last few years has been its performance. A $10,000 investment in the fund made 10 years ago would have grown to nearly $120,000 today. That results in a compound annual growth rate (CAGR) of 28%.

For reference, that trounces the return of the S&P 500 and Dow Jones Industrial Average over the same period. ETFs linked to those indexes generated CAGRs of 12.8% and 11.1%, respectively. In dollar terms, a $10,000 investment in the SPDR S&P 500 ETF Trust would have grown to only $33,000 over the last 10 years; a $10,000 investment in the SPDR Dow Jones Industrial Average ETF Trust has not yet hit $29,000 after 10 years.

SMH Total Return Level Chart

SMH Total Return Level data by YCharts

Why the VanEck Semiconductor ETF is a buy now

The reason for the VanEck fund’s outperformance over the last 10 years is also the reason the fund appears so well-positioned for the next decade or longer the world can’t get enough semiconductors.

Artificial intelligence (AI), autonomous driving, augmented reality, cloud computing, the metaverse, high-performance computing, next-gen smartphones, and cybersecurity all rely on newer, faster semiconductors. This high demand for top-of-the-line semiconductors is at an all-time high, with prices for the most sought-after GPUs regularly exceeding $10,000, and tech giants placing orders for hundreds of thousands at a time for their data centers and supercomputers.

In short, demand for semiconductors shows no sign of letting up anytime soon. So, for long-term investors looking to invest not just in one semiconductor stock, but a large swath of the industry, the VanEck Semiconductor ETF is a fund worth considering.

Jake Lerch has positions in Nvidia. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Intel and recommends the following options: long January 2025 $45 calls on Intel and short August 2024 $35 calls on Intel. The Motley Fool has a disclosure policy.



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