Is the VanEck Semiconductor ETF Still a Millionaire Maker?

Not every one winning investment strategy demands large selection of stock. Sometimes it just takes recognizing a trend, finding the right investment product and sticking with it.

This is the case of the semiconductor industry. It has been around for decades, and the companies in it have made investors richer all that time.

One of the easiest ways to invest in it the sector is through a popular exchange-traded fund (ETF) called VanEck Semiconductor ETF (SMH 2.46%).

Image source: Getty Images.

What is the VanEck Semiconductor ETF?

The VanEck Semiconductor ETF has been launched in May 2000. Fund is operated on de VanEck, a New York-based investment management firm with more than $100 billion in assets under management.

The fund tracks the MVIS US-Listed Semiconductor 25 Index, which focuses closely on that industry, following 25-the biggest listed in the US — but not necessarily US based — semiconductor companies. As such, the ETF portfolio it is somewhat top heavy with three megacaps — Nvidia, Taiwan Semiconductor Manufacturingand Broadcom — comprising approximately 43% of its total exposure.

Source: VettaFi.

From a growth versus value perspective, it’s clear that this isn’t just a growth-oriented fund — it isa hypergrowth oriented fund. Its current dividend yield is just 0.4%, so income-oriented investors can be safe.

As for fees, the fund has an expense ratio of 0.35% — meaning a $10,000 investment in the fund will result in $35 in fees per year. While not excessive, it is far from the lowest expense ratio around . For example, the Vanguard Information Technology ETF a similar fund with a slightly broader focus on the general technology sector has an expense ratio of just 0.1%.

How has the VanEck Semiconductor ETF performed?

It’s certainly possible to criticize this fund for its concentrated holdings and expense ratio, but one thing it’s hard to pick on is its performance.

To put it bluntly, the VanEck Semiconductor ETF blew away the competition.

Consider how it has stacked against some of benchmarks over the last 10 years, for example.

SMH Total Return Level data by YCharts.

Quite simply, this fund beat them. It generated an astounding total return of nearly 1,000% — meaning a $100,000 investment in it in 2014 would now be worth nearly $1.1 million.

Indeed, the fund has achieved a compound annual growth rate of 27% over the past 10 years, compared to 13% for S&P 500 and 16% for Nasdaq Composite.

Is the VanEck Semiconductor ETF Still a Buy Now?

All in all, this fund has many of the features that investors should be looking for. That said, it’s not for every investment portfolio. As mentioned earlier, the fund generates very little income due to its poor dividend yield. Furthermore, value investors should avoid the fund due to its concentration in high-growth and high-risk stocks.

However, for investors who focus on growth rather than income, or for long-term investors who are willing to weather periods of high volatility, this fund is worth considering.