Chipping Away At Semiconductor ETFs
A major driver of our economy can get lost in the portfolio shuffle. But how do you choose?
The semiconductor industry is crucial to technological advances and is one of the driving forces behind a host of other industries.
There are currently four semiconductor ETFs targeting U.S. stocks, and although the iShares PHLX Semiconductor ETF (SOXX) seems to be blowing away the competition and is ranked as the best choice by FactSet in its market segment, there are subtle differences some investors should consider.
Size & Cost
SOXX weighs in with assets under management (AUM) of almost $1.8 billion, more than five times the size of its next largest competitor, the SPDR S&P Semiconductor ETF (XSD), with $336.4 million in AUM. SOXX is also the oldest fund in the category, with its inception dating back to 2001.
However, XSD is cheaper, charging an expense ratio of 0.35% compared with SOXX’s 0.46%, making it the lowest-cost fund in the group.
The Invesco Dynamic Semiconductors ETF (PSI) is a $178 million fund and charges an expense ratio of 0.58%, while the smallest fund in the group, the First Trust Nasdaq Semiconductor ETF (FTXL), with $30.9 million in AUM, is also the most expensive, at 0.60%.
| Ticker | Fund | Expense Ratio | AUM | AD$V | ADSV | Spread | # Of Holdings | Inception | Flows ($M) |
| SOXX | iShares PHLX Semiconductors ETF | 0.46% | $1.77B | $110.45M | 535,124 | 0.04% | 32 | 10/7/2001 | 26.19 |
| XSD | SPDR S&P Semiconductor ETF | 0.35% | $336.39M | $10.69M | 119,591 | 0.06% | 36 | 31/1/2006 | 384.09 |
| PSI | Invesco Dynamic Semiconductors ETF | 0.58% | $177.96M | $1.81M | 31,741 | 0.07% | 31 | 23/6/2005 | -24.52 |
| FTXL | First Trust Nasdaq Semiconductor ETF | 0.60% | $30.87M | $371.23K | 10,681 | 0.57% | 30 | 20/9/2016 | 5.84 |
Source: FactSet, as of 10/4/2019
Holdings & Methodology
All four ETFs are very similar in many ways, holding 30-36 securities each, with a total of 11 securities held in common across all four funds—that’s roughly a third of each fund’s components. Still, there’s a lot of variance in the total weight of those 11 components in each fund, and that’s likely due to differences in methodology.
SOXX’s 32 holdings are weighted by modified market capitalization. XSD’s 36 holdings are selected based on market capitalization and are equally weighted, while PSI implements a multifactor quantitative approach to select and weight its 31 holdings. FTXL’s index methodology selects its 30 components based on liquidity, and weights them based on value, volatility and growth factors.
NVIDIA is SOXX’s largest holding, with a weighting of 8.42%, with Intel and Texas Instruments in the second and third spots, at 8.21% and 8.09%, respectively. All three of those securities are also held by the other three funds in the group, but at often very different weights. For example, FTXL gives NVIDIA only a 1.67% weighting, and XSD weights Intel at 3.18%.
(Use our stock finder tool to find an ETF’s allocation to a certain stock.)
The 11 components held by all four funds as a group also have very different aggregated weights in the respective ETFs, with those securities representing nearly 55% of SOXX’s total weight and less than 35% of XSD’s total weight.
For someone looking for semiconductor exposure, the individual security selection and weighting in such narrow-based funds could be very important if they have particular names they are hoping to see in a fund, especially when it comes to a company like NVIDIA.
| Company | SOXX | XSD | PSI | FTXL |
| NVIDIA Corporation | 8.42% | 3.28% | 5.27% | 1.67% |
| Intel Corporation | 8.21% | 3.18% | 5.18% | 8.08% |
| Texas Instruments Incorporated | 8.09% | 3.29% | 5.06% | 7.91% |
| QUALCOMM Incorporated | 7.57% | 3.24% | 4.81% | 1.53% |
| Broadcom Inc. | 7.55% | 3.18% | 4.70% | 2.50% |
| Analog Devices, Inc. | 3.92% | 3.18% | 4.94% | 3.87% |
| Micron Technology, Inc. | 3.73% | 2.89% | 4.72% | 3.70% |
| Xilinx, Inc. | 3.46% | 2.93% | 2.37% | 1.39% |
| Maxim Integrated Products, Inc. | 2.55% | 3.17% | 2.78% | 1.62% |
| Silicon Laboratories Inc. | 0.77% | 3.16% | 2.61% | 1.55% |
| Cirrus Logic, Inc. | 0.51% | 3.22% | 2.65% | 3.83% |
| 54.78% | 34.72% | 45.09% | 37.65% |
Performance & Trading
SOXX has had the best performance of the four funds over the three-, five- and 10-year annualized periods ended Oct. 4. However, the returns for this group tend to be clustered. The biggest differences open up in the year-to-date period, for which XSD is the top performer, with a return of 37.43%, followed by SOXX, which was up 35.37%. FTXL was up 33.83%, while PSI trailed the group significantly, with a return of 30%.
| Performance (As Of 10/04/19) | ||||||||
| 1 Month | 3 Months | YTD | 1 Year | 3 Years | 5 Years | 10 Years | ||
| SOXX | iShares PHLX Semiconductor ETF | 4.77% | 5.50% | 35.37% | 14.53% | 24.71% | 21.55% | 18.90% |
| XSD | SPDR S&P Semiconductor ETF | 2.59% | 3.43% | 37.43% | 17.96% | 19.73% | 20.62% | 17.23% |
| PSI | Invesco Dynamic Semiconductors ETF | 3.41% | 5.04% | 30.07% | 8.96% | 21.47% | 21.47% | 17.68% |
| FTXL | First Trust Nasdaq Semiconductor ETF | 5.04% | 5.40% | 33.83% | 13.80% | 19.74% | -- | -- |
XSD is also the top performer for the one-year period, up 17.96% versus 14.53% for SOXX and 8.96% for PSI, which was at the back of the pack.
Interestingly, XSD also has the most inflows year-to-date, gaining $384 million, while PSI was the only fund in the group to have year-to-date outflows, losing nearly $25 million. SOXX gained a little more than $26 million.
When it comes to liquidity, SOXX dominates the field, with average daily dollar volume of more than $110 million and a spread of just 0.04%. That contrasts sharply with FTXL’s average daily dollar volume of $371,000 and spread of 0.57%. The two funds in the middle are XSD, with a volume of almost $11 million and a spread of 0.06%, and PSI with a volume of nearly $2 million and a spread of 0.07%.
Conclusions
SOXX, of course, is a solid choice. It has the best trading liquidity in the group, the highest AUM and the endorsement of FactSet’s analyst team. However, there are subtle differences some investors may want to keep an eye on, especially at the individual security level.
XSD’s more than $300 million in AUM is nothing to sneeze at, and the fund is the cheapest in the group. Plus, its trading stats are perfectly acceptable and can accommodate large trades. The choice between the two largest funds should come down to individual security preferences. SOXX and XSD have 20 components in common, but those 20 components represent roughly 75% of SOXX’s portfolio and two-thirds of XSD’s.
PSI is perfectly acceptable in terms of size and trading stats, but it’s clearly out of favor with investors so far in 2019, likely due to its recent lackluster performance. However, it keeps pace over the long term, and could have some appeal based on its component list.
FTXL is the only fund on the list with clear reasons why investors should avoid it. It is the smallest and least liquid ETF in the group as well as being the most expensive. Further, it doesn’t have any holdings that don’t appear in at least one of the other three ETFs, so the issue of exposure and security selection doesn’t really come into play.
The semiconductor space is pretty hot right now, and investors have four narrow-based funds to choose from. However, they may want to look beyond the obvious choice.
Heather Bell can be reached at [email protected]
