Semiconductor ETFs are generating stellar returns as stocks like Nvidia (NASDAQ:NVDA) reach new heights. However, not all semiconductor ETFs are the same. Two funds may both focus on semiconductors, but there may be big differences in the types of semiconductor stocks they hold, the weighting of those stocks in their portfolios, their returns over time , fees and many other things that investors need to consider.
Let’s take a look at two popular semiconductor ETFs, the iShares Semiconductor ETF (NASDAQ:SOXX) and the First Trust Nasdaq Semiconductor ETF (NASDAQ:FTXL). They both invest in the space but take different approaches and have generated different returns over time. I’m bullish on both ETFs, but one is the better choice based on several factors that we’ll evaluate in this article.
What is the strategy of the SOXX ETF?
SOXX is an index ETF from BlackRock (NYSE:BLK) iShares which, according to the fund, offers investors “exposure to U.S. companies that design, manufacture and distribute semiconductors” by investing in “an index composed of U.S.-listed stocks in the semiconductor sector “. SOXX invests primarily in the 30 largest American stocks classified as semiconductor companies by ICE.
SOXX was launched in 2001 and has assets under management (AUM) of $12.8 billion.
What is the strategy of the FTXL ETF?
Meanwhile, FTXL invests in an index called the Nasdaq US Smart Semiconductor Index. First Trust describes this index as a “modified factor-weighted index created and administered by Nasdaq, Inc (NASDAQ:NDAQ). designed to provide exposure to U.S. companies in the semiconductor industry.
Stocks in this index are ranked based on three factors: their return on assets over the past 12 months, their gross income over the past 12 months, and their momentum based on price appreciation over three, six, nine, and 12 month.
The 25% of stocks in that universe with the lowest scores based on those scores are then eliminated from the index, leaving it with a remaining group of 30 to 50 stocks in which FTXL can potentially invest. These remaining stocks are weighted based on their last 12 ratings. cash flow over 1 month and can have a weighting of up to 8% and a minimum of 0.50%.
The index is then reconstituted and rebalanced semi-annually. As we’ll see below, these different approaches create two portfolios that overlap to some extent, but also have key differences.
How do their portfolios compare?
SOXX owns 30 stocks and its top 10 holdings represent 61.7% of the fund. Below is an overview of SOXX’s Top 10 Stocks using the TipRanks fund tool.
Meanwhile, FTXL owns 32 stocks and its top 10 holdings account for 65.9% of holdings. The two funds are therefore very similar in terms of diversification. Below is an overview of FTXL Top 10 Titles using the TipRanks fund tool.
As you can see, SOXX holds large positions with double-digit weightings in its two largest stocks, Nvidia and Advanced Micro Devices (NASDAQ:AMD). These large positions have served SOXX well, as Nvidia is up 283.4% over the past year, while Advanced Micro Devices is up 147.6%.
At the same time, FTXL holds a significant 9.2% stake in its main holding company, Qualcomm (NASDAQ:QCOM). This stock has generated a 44.5% gain over the past year, which is great but lags behind the astronomical returns from Nvidia and advanced micro-devices. Note that FTXL also holds these stocks, but with lower weightings of 5.7% and 6.1%, respectively.
Both funds hold significant positions in Broadcom (NASDAQ:AVGO), another big winner in the chip space, which has gained 127.6% over the past year.
TipRanks’ Smart Score system gives nine of SOXX’s top 10 stocks Smart Scores equivalent to performance above 8 or higher, and it gives eight of FTXL’s top 10 stocks Smart Scores of 8 or higher. 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.
Both ETFs receive a return equivalent to outperformance Smart ETF Scores out of 8. These are both strong portfolios, but Smart Score rates SOXX’s top holdings a bit more favorably, and SOXX’s top holdings have helped it outperform FTXL, as we’ll return to in the next section.
Face-to-face performances
When it comes to performance, these two ETFs have been long-term winners. As of February 29, FTXL had generated an impressive three-year annualized return of 11.8% and a five-year return of 24.5%.
Meanwhile, as of the same date, SOXX generated an even more impressive three-year annualized return of 17.2% and a staggering five-year annualized return of 30.3%.
FTXL launched in 2016, so we can’t yet compare the two ETFs over a 10-year period, but SOXX’s 10-year return of 25.3% over the last decade is excellent.
FTXL’s returns are good, but SOXX’s are even better, and it has a longer history of excellence, giving SOXX a clear advantage in this category. Both ETFs have solid strategies, but it appears that SOXX’s strategy Simply investing in the 30 largest U.S. semiconductor stocks has generated stronger performance than FTXL’s more nuanced strategy over time.
Is SOXX Stock a Buy, According to Analysts?
As for Wall Street, SOXX earns a Moderate Buy consensus rating based on 24 Buys, six Holds, and one Sell rating assigned over the past three months. THE average price target for SOXX stock of $671.72 implies 191% upside potential from current levels.
Is FTXL Stock a Buy, According to Analysts?
As for Wall Street, FTXL earns a Moderate Buy consensus rating based on 25 Buys, seven Holds, and one Sell rating assigned over the past three months. THE FTXL stock average price target of $90.59 implies a 2% downside potential from current levels.
Cost comparison
In terms of fees, SOXX’s expense ratio of 0.35% is a better deal than FTXL’s expense ratio of 0.60%. An investor investing $10,000 in SOXX will pay $35 in annual fees, while an investor investing $10,000 in FTXL will pay $60.
The differences between these fees compound and become more apparent over time. For example, assuming each ETF returns 5% per year from then on, the investor who invests $10,000 in SOXX will pay $443 in fees over the next 10 years, while the investor who puts the same amount in FTXL will pay $750.
Add it all up
They are both good ETFs that invest in solid stocks and have generated significant returns for investors. However, the returns generated by SOXX are significantly better than those of FTXL and the fees are significantly lower, making SOXX the clear winner here. Additionally, TipRanks’ Smart Score system offers a slightly more favorable outlook on SOXX’s top stocks, and analysts also view SOXX as having greater upside potential, furthering SOXX’s advantage.
