Artificial intelligence (AI) is currently the leading indicator in the technology sector. Additionally, gains from mega-cap tech giants such as Nvidia, Microsoft, Amazonand still others contribute to fueling the S&P500 And Nasdaq Composite to record peaks.
With shares up nearly 180% so far in 2024, Nvidia has recently become the largest company in the world by market capitalization. Some investors might think it’s too late to jump on the Nvidia bandwagon. Alternatively, as shares of the semiconductor giant continue to soar on a seemingly daily basis, investors could look for alternative options in the AI ​​chip space.
THE VanEck Semiconductor ETF (NASDAQ:SMH) might just be what you’re looking for. Let’s see why this exchange traded fund (ETF) appears to be a great opportunity for long-term investors interested in semiconductor businesses beyond Nvidia.
What do you get with the VanEck Semiconductor ETF?
The VanEck Semiconductor ETF holds shares in 25 semiconductor companies. Although Nvidia is the fund’s largest holding with a 25.7% weighting, other significant holdings include Taiwan Semiconductor, Broadcom, ASML Securities in portfolio, Qualcomm, IntelAnd Advanced microsystems.
One of the reasons I like the VanEck Semiconductor ETF is that it gives investors exposure to many pockets of the AI ​​chip market. For example, while Intel and AMD compete directly with Nvidia in the area of ​​graphics processing units (GPUs), positions such as Qualcomm and Broadcom give investors a passive position in markets related to chip applications in the Internet of Things (IoT), the smart home. household appliances, mobile devices and network infrastructure.
Additionally, Qualcomm in particular represents an attractive opportunity given the company’s ongoing turnaround efforts. Given that expectations are quite low, I view Qualcomm as a potentially lucrative opportunity if the company continues to execute on its growth initiatives.
Additionally, one of my favorite and most respected smart hedge fund managers, Brad Gerstner, just added Broadcom to his portfolio. I think this move adds some credibility to Broadcom in particular and to the company’s role in the AI ​​revolution.
How did the fund perform?
The table shows the average annual total returns of the VanEck Semiconductor ETF over different time periods.
1 year | 3 years | 5 years | 10 years |
|---|---|---|---|
67.7% | 25.4% | 38.6% | 27.8% |
Data Source: VanEck Semiconductor ETF Factsheet.
To be on the safe side, I wouldn’t suggest getting too enticed by one-year returns. Remember, the S&P 500 and Nasdaq are both near record highs, and tech companies have a lot to do with it. As such, Nvidia and many of its cohorts have seen outsized purchasing activity over the past year.
However, the five-year and ten-year returns may catch your eye. Not only are these returns impressive, but they also exceed the long-term average return of the S&P 500, which is around 6.5% when accounting for inflation.
In a way, this makes sense. The S&P 500 constitutes a much broader basket of companies than the VanEck Semiconductor ETF, which focuses only on a relatively small cohort. Additionally, the S&P 500 also has exposure to many more end markets than the VanEck Semiconductor ETF.
Should you buy the VanEck Semiconductor ETF now?
On one side of the equation, the VanEck Semiconductor ETF demonstrates market-beating returns over a long-term horizon and provides investors with a high degree of diversification among semiconductor companies.
However, it is important to keep in mind that the semiconductor industry is very cyclical. This means that demand trends can fluctuate dramatically, which will impact these companies and the sentiment around them.
That said, the fund’s expense ratio of 0.35% is quite reasonable. I think investors looking for broad exposure to the chip sector and AI in general should consider the VanEck Semiconductor ETF. This is a good option for investors looking for opportunities outside of the most obvious plays, all at a reasonable price.
Should you invest $1,000 in VanEck ETF Trust – VanEck Semiconductor ETF right now?
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco holds positions at Amazon, Microsoft and Nvidia. The Motley Fool holds positions and recommends ASML, Advanced Micro Devices, Amazon, Microsoft, Nvidia, Qualcomm and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Broadcom and Intel and recommends the following options: long January 2025 $45 calls on Intel, long January 2026 $395 calls on Microsoft, short August 2024 $35 calls on Intel, and short 405 calls $ in January 2026 on Microsoft. The Mad Motley has a disclosure policy.
Did you miss Nvidia? Here’s 1 spectacular ETF to buy instead was originally published by The Motley Fool
