💻 Top Semiconductor ETFs You Should Know About

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Given the company's significant influence, it's safe to say that the U.S. economy might as well be called "Nvidia and Friends" at this point in 2024.

While Nvidia's remarkable valuations, impressive revenue growth, and AI dominance in the semiconductor sector may make it seem like everything revolves around its brand, it's important to note that there are numerous opportunities in silicon-based technology. Investing in a solid semiconductor ETF provides broad exposure to top companies designing and manufacturing these crucial components, ensuring a confident and secure investment in the future of technology.

Let's take a look at today's top semiconductor ETFs for our "QuickList" series.

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From AI to EVs: Tiny Chips Make Big Waves🌊

Semiconductors are the unsung heroes of the tech world. Without these little chips, your smartphone would be a dumbphone, your laptop would be a paperweight, and the cloud would be nothing more than a puffy mass in the sky. When you send an email, play a video game, or use GPS, semiconductors are hard at work behind the scenes.

Today, semiconductors provide the processing power and memory capacity that enable innovations across a wide range of industries:

• AI: Semiconductors power the machine learning algorithms used in everything from social media feeds to autonomous vehicles.

• 5G Networks: Semiconductors allow faster data processing and transmission, making next-generation mobile networks possible.

• Electric Vehicles (EVs): These chips are used in battery management systems, sensors, and power electronics to make EVs function.

• Cloud Computing: Semiconductors store and process the immense data used in cloud-based services.

The demand for semiconductors is so high that companies in this industry often experience rapid growth. While investing in individual semiconductor stocks like Nvidia or AMD can be lucrative, it's also risky due to the volatile nature of tech markets. That's where semiconductor ETFs come in.

Let's discuss the growing popularity of leveraged ETFs in the semiconductor sector. Leveraged ETFs utilize financial derivatives and debt to increase the returns of an underlying index, often offering two or even three times the daily performance. The appeal? These ETFs can deliver remarkable short-term gains when semiconductor stocks are on the upswing.

However, as frequently emphasized in the ETF UNO newsletters, leveraged ETFs are a two-sided coin. While they can yield substantial profits in a bullish market, they can also lead to significant losses if the market moves in the opposite direction. They are typically best suited for experienced investors who are comfortable with the added risk and short-term trading strategies.

🔝Top Semiconductor ETFs

1. VanEck Semiconductor ETF (SMH)

Expense Ratio: 0.35%

Provider: VanEck

Past 5 Years Annualised Performance: 34.8%

Already covered in our article, SMH is like the Swiss Army knife of semiconductor ETFs—it's versatile, reliable, and gets the job done. With holdings spanning industry giants like Nvidia and Taiwan Semiconductor to specialised players like Applied Materials, SMH gives you a comprehensive slice of the semiconductor pie. Its impressive performance over the past year is a testament to the sector's strength and the fund's well-curated portfolio.

2. ProShares Ultra Semiconductors (USD)

Expense Ratio: 0.95%

Provider: ProShares

Past 5 Years Annualised Performance: 61.1%

Also introduced by ETF UNO, USD is not for the faint of heart. This leveraged ETF is the financial equivalent of strapping a rocket to your investment strategy. Its eye-popping performance over the past year might have you seeing dollar signs, but remember: great leverage comes great volatility. USD is best suited for short-term traders with a high-risk tolerance and a penchant for adrenaline rushes.

3. iShares Semiconductor ETF (SOXX)

Expense Ratio: 0.35%

Provider: iShares

Past 5 Years Annualised Performance: 31.4%

The SMH ETF is like the Swiss Army knife of semiconductor funds, while SOXX is more like a high-end chef's knife. It's precise, well-balanced, and gets the job done with style. SOXX has a slightly different composition than SMH, offering investors another angle on the semiconductor sector. It's a popular choice for investors who want to fine-tune their exposure to the tech industry.

4. First Trust Nasdaq Semiconductor ETF (FTXL)

Expense Ratio: 0.60%

Provider: First Trust

Past 5 Years Annualised Performance: 23.9%

FTXL is like the cool, slightly nerdy cousin in the semiconductor ETF family. It uses a rules-based methodology to select stocks, considering price appreciation, volatility, and value. This approach can lead to a portfolio that looks quite different from market-cap-weighted funds, offering diversification benefits for investors who already have exposure to the big names in the space.

5. Invesco Semiconductors ETF (PSI)

Expense Ratio: 0.57%

Provider: Invesco

Past 5 Years Annualised Performance: 25.6%

If you're tired of seeing the same few names dominate your semiconductor exposure, PSI might be your new best friend. Its equal-weight approach means smaller, potentially faster-growing companies get as much representation as the industry giants. This can lead to a different return profile compared to market-cap-weighted funds, potentially offering higher growth potential.

Chip-Powered Portfolios and the Road Ahead🛣️

Let's recap the key points:

1. Semiconductor ETFs offer a way to invest in foundational technology that drives innovation across multiple sectors.

2. These ETFs provide diversification within the semiconductor industry, reducing single-stock risk.

3. Leveraged semiconductor ETFs can offer amplified returns but come with significantly higher risk and are best suited for short-term trading.

4. A wide variety of semiconductor ETFs are available, from broad market-cap-weighted funds to more specialised offerings using smart-beta or equal-weight strategies.

5. Performance across the sector has been strong, but past performance doesn't guarantee future results.

So, dear ETF UNO reader, as you contemplate your next move in the ever-evolving world of ETF investing, we encourage you to keep your finger on the pulse of the semiconductor industry. Join our ETF UNO community for ongoing insights, discussions, and analysis of semiconductor ETFs and the entire ETF universe.

Until next time, happy investing, and may your returns be as plentiful as the transistors on a modern CPU!💻

DISCLAIMER: This article is for informational purposes only and does not constitute investment advice. Always conduct your own research and consider consulting with a financial advisor before making investment decisions.