Key Points
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The VanEck Semiconductor ETF (SMH) is one of the best-performing semiconductor ETFs over the past five years.
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Its market-cap-weighting strategy has allowed the fund to maintain outsized allocations to the sector’s biggest winners.
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Investors in the fund just five years ago would have nearly quintupled their money.
- 10 stocks we like better than VanEck ETF Trust – VanEck Semiconductor ETF ›
The semiconductor sector has unquestionably been one of the market’s biggest winners over the past five years. It’s been fueled by huge demand for artificial intelligence (AI) infrastructure, cloud computing, and high-performance chips.
The VanEck Semiconductor ETF (NASDAQ: SMH) has become one of the largest and most successful exchange-traded funds during this stretch. The biggest factor in making this ETF a leader in the category might be its market-cap-weighting methodology. By overweighting the industry’s biggest players, including Nvidia (NASDAQ: NVDA), Taiwan Semiconductor Manufacturing (NYSE: TSM), Intel (NASDAQ: INTC), and Broadcom (NASDAQ: AVGO), the fund has been able to capture some of the biggest gains with larger allocations.
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Over the past five years, the VanEck Semiconductor ETF has produced a total return of 384% (as of May 22). Almost all of that comes from share-price appreciation, with a negligible contribution from dividend income.
That means someone who invested just $1,000 in the fund five years ago would today have approximately $4,840. That’s an annualized return of more than 37%!
The big question now becomes whether that momentum can continue. AI-related spending remains robust. Earnings growth is expected to be strong for at least the next couple of years. Valuations are high but not excessive. It’s likely to come down to execution. If semiconductor companies can keep up with demand, investor returns should follow.
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David Dierking has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Broadcom, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
