It’s hard to look beyond Nvidia (NASDAQ:NVDA) these days, but it’s important to remember that there are many other great semiconductor (chip) stocks out there as well. The VanEck Semiconductor ETF (NASDAQ:SMH) allows investors to gain exposure to both Nvidia and other attractive opportunities in the semiconductor space.
I am bullish on SMH due to its strong portfolio of blue-chip stocks semiconductor stocks, which is performing well and has significant long-term growth potential, as well as its incredible track record of generating strong returns for its holders. We have SMH cutlery previously; since then, it has performed well and continues to look like an attractive long-term opportunity.
What is the strategy of the SMH ETF?
SMH is the largest dedicated semiconductor ETF. According to sponsor VanEck, SMH invests in “the MVIS US Listed Semiconductor 25 Index (MVSMHTR), which is intended to track the overall performance of companies involved in semiconductor production and equipment.”
VanEck highlights the fact that these are highly liquid stocks, industry leaders and companies with global reach.
Compelling Semiconductor Stock Portfolio
SMH owns 26 stocks and its top 10 holdings represent 76.2% of the fund. Below you will find an overview of Top 10 SMH Stocks using the TipRanks fund tool.
While the fund is not particularly diversified, it provides investors with substantial exposure to Nvidia (which has a large 24.6% weighting) and other top semiconductor stocks, including Taiwan Semiconductor (NYSE:TSM), Broadcom (NASDAQ:AVGO), Qualcomm (NASDAQ:QCOM) and more.
Without Nvidia’s 209.6% gain over the past year, it’s likely we’d be hearing more about Broadcom and its 111.8% gain. But the semiconductor and software infrastructure giant is now poised to become one of the world’s ten largest companies and deserves all the attention on its own. The stock is a long-term winner that has generated an incredible total return of 3,168% over the past decade.
It is also an underrated dividend growth stock which has increased its dividend payout for 13 consecutive years and has grown that payout at an impressive CAGR of 17.5% over the past five years. Additionally, like Nvidia, Broadcom has its own stock split coming.
The company recently announced that it would run a 10 for 1 stock split, which will go live on July 12. While stock splits don’t necessarily make a fundamental difference, they can generate significant interest and momentum in a stock, as we recently saw with Nvidia. They can also make stocks more accessible to small and retail investors.
Besides Broadcom, Taiwan Semiconductor is another of several attractive chip stocks among SMH’s top holdings.
Taiwan Semiconductor is the world’s largest and most advanced chip manufacturer. Leading semiconductor companies such as Nvidia, Broadcom, Qualcomm and others turn to Taiwan Semiconductor to manufacture the cutting-edge chips they design and develop. This makes Taiwan Semiconductor an attractive play in the semiconductor space. The $786.1 billion company has seen its shares gain a healthy 75.2% over the past year and reach a new absolute record.
Next up, Qualcomm, which is up 93.8% over the past year, has made a name for itself as the company develops cutting-edge semiconductors for everything from smartphones to automobiles to internet devices Objects.
Additional Top 10 Titles, ASML (NASDAQ: ASML) and Lam Research (NASDAQ:LRCX), are among the few companies in the world that provide the high-tech tools and equipment used in the semiconductor manufacturing process, making them crucial parts of the wide-moat semiconductor value chain ( competitive advantages).
One thing that Broadcom, Taiwan Semiconductor, and Qualcomm all have in common is that they all feature “Perfect 10” smart scores. THE Smart score is a proprietary quantitative stock rating system created by TipRanks. It rates stocks from 1 to 10 based on eight key market factors. A score of 8 or higher equates to an Outperform rating. Seven of SMH’s top 10 stocks have smart scores equivalent to an outperformance of 8 or higher.
Additionally, SMH displays an ETF Smart Score equivalent to an outperformance of 8.
Sensational long-term performance
SMH has a strong collection of highly rated semiconductor stocks and has also a long history of generating excellent returns for its holders, giving it a track record that’s hard to beat.
As of May 31, SMH had generated an enviable three-year annualized return of 25.5%. This exceptional performance easily outweighs that of the market as a whole. The Vanguard S&P 500 (NYSEARCA: FLIGHT) returned 9.6% on an annualized basis over the same period. It even beats the strong performance of the tech-focused Technology Select Sector SPDR Fund (NYSEARCA: XLK), which generated an annualized return of 15.9% over the same period.
Over a longer five-year period, SMH generated a scorching annualized return of 38.6%. This figure still far exceeds the market as a whole and XLK (VOO generated an annualized return of 15.8% over the same period, while XLK generated an annualized return of 25.2%). Note that these are both excellent returns, and SMH still beat them by a wide margin.
Even going back 10 years, SMH has produced a phenomenal annualized return of 27.8%, once again beating the broader market and the tech-focused XLK. VOO reported an annualized return of 12.7% over the same period, while XLK reported an annualized return of 20.3%.
What is SMH’s expense ratio?
SMH has a reasonable expense ratio of 0.35%, meaning an investor in the fund will pay $35 on a $10,000 investment per year. These are not the lowest fees, as many market index funds charge lower fees. However, it is comparable to its peers and reasonable enough for a sector-specific ETF, especially one as successful as SMH.
Is SMH Stock a Buy, According to Analysts?
Looking at Wall Street, SMH earns a Moderate Buy consensus rating based on 21 Buy ratings, five Holds, and no Sell ratings assigned over the past three months. THE SMH stock average price target of $285.18 implies 7.5% upside potential from current levels.
Takeaways for investors
In conclusion, I am bullish on SMH as it provides investors with substantial exposure to Nvidia and major semiconductor stocks like Broadcom, Taiwan Semiconductor and others. Additionally, its phenomenal returns over the past three, five and ten years give it an unassailable track record.
