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 -1.01%). Let's dive right in.
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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 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.
