The VanEck Semiconductor ETF (SMH ) debuted in December 2011 and is home to nearly $17 billion in assets under management, making it one of the oldest and largest semiconductor exchange traded funds on the market today.
While superficial, those traits fortify SMH’s bellwether status in this ETF category, one that’s been enhanced by the fund’s status as a credible proxy on Nvidia (NVDA) shares. That high-flying chip giant has a market capitalization of $2.1 trillion and a share price of $852.52 as of Monday’s close. The stock is difficult to access for some capital-constrained retail investors.
Fortunately, SMH allocates 25.68% to Nvidia, providing investors with more than adequate leverage to the stock. Nvidia is by far the largest of the 26 holdings found in SMH. However, one stock doesn’t begin or end this ETF’s story.
Impressive History for SMH
As noted above, SMH has a lengthy track record, confirming it is battle-tested across a variety of market environments. Additionally, the ETF being is over 12 years old. So it’s easy for investors to get a sense of how SMH has performed relative to broader technology benchmarks.
As noted by Morningstar analyst Kumudini Devalla, SMH’s long-term track record is impressive, garnering the ETF a five-star rating and a medalist rating of silver from the research firm.
“Over a 10-year period, this share class outpaced the category’s average return by 11.2 percentage points annualized. It was also ahead of the US Technology Index by 5.2 percentage points over the same period,” wrote Devalla.
During that decade, Nvidia wasn’t always the top dog in SMH. The MVIS US Listed Semiconductor 25 Index – SMH’s underlying benchmark – is cap-weighted. This means the weights assigned to its holdings fluctuate alongside those stocks’ market values.
SMH’s methodology has made a clear difference. For the three years ending March 1, the VanEck ETF returned 81.6% compared to 62.6% for the next-largest chip ETF, a fund that tracks the NYSE Semiconductor Index. Add to that, SMH was slightly less volatile on an annualized basis during that span. Those are among the reasons SMH is considered one of the top ETFs in the semiconductor category. SMH carries an annual expense ratio of 0.35%, or $35 on a $10,000 investment.
“Although the overall rating does not hinge on one-year performance figures, it is notable that this share class returned 73.2%, an impressive 31.2-percentage-point lead over its average peer, placing it within the top 10% of its category,” concluded Devalla.
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