Within the past five years, the S&P 500 Semiconductors index has gained 270%. The need for chips during the pandemic is even more apparent amid a heavier reliance on tech, which is helping to fan the flames for this hot sector and the Invesco Dynamic Semiconductors ETF (PSI).

PSI tracks a benchmark that is designed to provide returns based on semiconductor firms. Semiconductor chips act as the brains to numerous devices that we rely on today, including smartphones, calculators, computers, and much more.

As technology continues to improve and expand, these chips will help power new devices. The fund focuses entirely on U.S. stocks, giving investors pure domestic exposure to numerous semiconductor producers.

Investors should note that this fund dedicates the majority of its assets to medium and small cap funds, meaning that it will be more volatile than a traditional large cap fund. But it also presents strong growth opportunities for those who believe in the semiconductor segment of our nation.

At a 0.57% expense ratio, PSI is six basis points higher than its category average. Yet the fund has gained almost 70% the past year, and is up 14% in 2021.

PSI Chart

The chart below pits the fund against the aforementioned S&P 500 Semiconductors index over the past year. PSI is outperforming this index by about 27%.

^SPXSCSI Chart

Pare down the time frame to a more recent 3 months and the disparity in performance is still apparent. PSI is up almost 30% versus the index.

^SPXSCSI Chart

A Big Engine under PSI’s Hood

Popping the hood of PSI reveals a heavy concentration in large cap blend and large cap growth equities. Its top three holdings comprise a who’s who in the semiconductor industry including Micron Technology Inc, Applied Materials, and Lam Research Corp.

All three companies, which make up about 15% of the fund, have had a stellar one-year performances. Lam Research Corp leads the pack, having gained 85% the past year.

As the world relies more heavily on the internet and technology amid the pandemic, more processing power will be necessary to handle increasing amounts of data. Look for more strength to continue in the semiconductor industry in 2021.

AMAT Chart

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