The semiconductor sector is a small but vitally important piece of the technology ecosphere. In a world dominated by social media and software conglomerates, it’s important to remember how hardware companies allow for these platforms to thrive. The recent outperformance of this industry group within the broader technology sector has promoted chip makers to the top of many momentum leaderboards to kick off 2018.
The largest exchange-traded fund that tracks this segment is the iShares PHLX Semiconductor ETF (SOXX). This fund has $1.6 billion dedicated to a concentrated group of just 30 semiconductor stocks domiciled in the United States. Top holdings in SOXX include well-known names such as NIVIDIA Corp (NVDA), Intel Corp (INTC), and Texas Instruments (TXN). The fund charges a net expense ratio of 0.48% to own this basket.
Its market-cap weighted structure means that the top ten holdings for SOXX account for most of the asset base. Roughly 60% of the portfolio is skewed towards larger corporations, which means they will have a significant pull on the performance of the fund.
That hasn’t been such a bad thing this year as SOXX has gained +15.61% to start 2018 and has jumped over 18% since the brief correction that bottomed in early February. The momentum behind this surge has allowed SOXX to break back above its prior high and demonstrate formidable strength relative to the broad market.
For those looking for a more equitable distribution of portfolio capital, the equal-weighted SPDR S&P Semiconductor ETF (XSD) is a competitive ETF offering in this genre. This fund identifies 35 stocks from within the S&P semiconductor sub-industry and allocates capital evenly to each underlying holding. The net effect is to promote greater contribution from smaller companies relative to their large-cap peers.