Best ETF to Buy: VanEck Semiconductor ETF vs. iShares Semiconductor ETF

Semiconductor stocks rose, led by Nvidia. But this was far from the only winner — other popular names such as Taiwan Semiconductor, Advanced microdevicesand Broadcom all have increased since the beginning of 2023, shortly after the launch of ChatGPT.

If you want exposure to a group of stocks, a smart way to do it is through an exchange-traded fund (ETF). These funds trade like stocks, but they own a number of companies instead of just one. An ETF is the easiest way to quickly diversify your holdings in a sector like semiconductors.

The two largest semiconductor ETFs are VanEck Semiconductor ETF (SMH 2.88%) and the iShares Semiconductor ETF (SOXX 3.58%). Let’s compare the two to see which one is the better option.

Image source: Getty Images.

A choice of two types of semiconductor ETFs

You might think that the composition of these two ETFs would be the same, but that’s not the case. Unlike rival index funds, which have similar compositions due to tracking the same underlying index, these two ETFs are based on different indices.

The VanEck Semiconductor ETF tracks the MVIS US Listed Semiconductor 25 Index, while the iShares version tracks the NYSE Semiconductor Index.

As a result, there are significant differences between their five largest holdings, as you can see from this chart.

Source: company websites. Data from 20.09.24.

The VanEck ETF has more than double the Nvidia exposure of the iShares ETF. Importantly, the iShares ETF does not hold foreign stocks such as Taiwan Semiconductor (TSMC) and the Netherlands. ASMLtwo of the most important semiconductor stocks. Perhaps that gives the VanEck ETF an edge. While TSMC is the second largest holding in the VanEck fund, ASML is the sixth largest.

The VanEck ETF holds 26 stocks, while the iShares ETF holds 30.

Performance comparison

Based on the chart above, it probably won’t surprise you that the VanEck Semiconductor ETF recently outperformed the iShares Semiconductor ETF because it has a higher exposure to Nvidia.

In the 10 years before the generative AI boom begins in early 2023, the iShares ETF has outperformed VanEck, as you can see in the chart below.

SMH data by YCharts.

But since then, the VanEck ETF has dominated, dating back to 2013.

SMH data by YCharts.

From the beginning of 2023, the difference between the two funds is even clearer.

SMH data by YCharts.

Based on recent performance, it looks like the VanEck ETF has the edge here.

Other values ​​to consider

While current holdings and past performance are probably the two most important factors in judging an ETF to buy, other key metrics are worth considering.

First, the expense ratio, which measures the cost of owning an ETF, is always important when investing in them. The VanEck ETF and the iShares ETF have the same ratio: 0.35%.

Semiconductor stocks aren’t usually known for high yields, but dividends can make the difference for some investors. Here, the VanEck ETF has a 30-day yield of 0.49%, an estimated annual dividend, while the iShares ETF’s yield is 0.62%.

Finally, the VanEck ETF is the larger of the two funds by net assets ($23 billion), indicating that it has attracted more investment than the iShares ETF ($15.3 billion dollars).

Which ETF is the winner?

Based on its recent performance as well as its holdings, the VanEck Semiconductor ETF has an edge over the iShares Semiconductor ETF. The increased exposure to Nvidia should still be a plus as that company dominates the AI ​​chip market, and the exposure to foreign companies like TSMC and ASML is a plus as these two stocks are well positioned for growth.

Both ETFs are good candidates to outperform, but VanEck is the best bet right now.