SMH ETF: Top 25 Semiconductor Stocks vs. Nasdaq 100 and SOXL

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This is only a record of my personal analysis and the contents may contain errors or information that differs from the actual situation. Please understand in advance when viewing this site.

Introduction.

Witnessing the rapid growth of AI semiconductors such as NVIDIA, many people may think that they should have invested in semiconductors earlier.
However, the semiconductor industry is very fragmented, with many companies and a great deal of choice in the stocks in which to invest.

Especially with NVIDIA's stock price also reaching the $800 level, timing to market is difficult.
For this reason, we will take a deeper look at the SMH option, an ETF that invests in the entire U.S. semiconductor sector rather than individual semiconductor stocks.

This ETF invests in a diversified portfolio of 25 major U.S. semiconductor stocks, which includes key AI semiconductors, including NVIDIA.

The attractiveness, advantages and disadvantages of this package will be explained, and their performance will be analyzed through comparisons with the NASDAQ 100, a collection of high-tech stocks, and SOXL, a leveraged ETF.

What are the characteristics of ETFs with SMH?

SMH (VanEck Semiconductor ETF) is,ETF specializing in the semiconductor industry, investing primarily in U.S. semiconductor companiesThe company is doing so.

This ETF is,Track the MVID U.S. Listed Semiconductor 25 Index as closely as possible.The index aims to track the performance of companies involved in semiconductor manufacturing and equipping.

The main features of SMH are as follows

• Investment Management CompanyVanEck
• Total assets under management:It amounts to about $7.98 billion.
• Expense Ratio0.35%, which is a common level for specialized ETFs.

What is VanEck?

• VanEck is a global investment management firm based in the United States.
• Founded in 1955 by John C. Van Eck, the firm focuses specifically on emerging markets and specialty asset classes.
• VanEck is also particularly well known for its ETF (exchange-traded fund) offerings, with a number of products focused on specific sectors and themes such as gold, natural resources, and real estate.
• It is also recognized for its innovative investment solutions, including digital assets and sustainable investments.

Learn more about ETFs here.

What is the U.S. Continuously Growing Dividend ETF VIG? - What is an ETF?

How does SMH operate?

Key features of SMH's operational structure include

Cash Contribution ETFs

SMH is a type of investment product called a "cash contribution ETF".
Specifically, the system purchases stocks in the market and provides a "basket" (i.e., a set of stocks) of those stocks to the management company.

Instead, investors receive beneficiary certificates in the ETF, which SMH aims to track as closely as possible the movement of a specific stock index, the "MVIS US Listed Semiconductor 25 Index".
In other words, the ETF is designed to mimic the performance of an index, reflecting the price changes of the stocks in that index.

This allows investors to invest in the semiconductor sector as a whole without having to directly select individual stocks.

Secondary and Issuing Markets

There are two markets for ETFs: the secondary market and the issuance market.
In the secondary market, ordinary investors buy and sell ETFs on stock exchanges, while in the issuance market, beneficial interests in ETFs are established or cancelled between managers and designated participants (usually major financial institutions), which increases or decreases the number of outstanding beneficial interests in the ETF.

This management structure allows SMH to offer investors the freedom and transparency of equity-like trading while providing performance linked to stock indices.

ETFs, by their structure, also allow for diversification, real-time trading, and flexibility in investment strategies.

What is SMH's expense ratio?

• SMH (Van Eck Semiconductor ETFThe expense ratio of 0.351 TP3T

This expense ratio is used to cover the costs associated with managing the ETF and to maintain the tracking accuracy of the index. As a cost, it is relatively standard.

What is SMH's dividend yield?

• SMH (Van Eck Semiconductor ETF) dividend yield is currently 0.46%

Dividends of approximately $1.0427 per share will be paid annually.
Because semiconductors are a growth industry, dividend yields tend to be low. 

When are SMH distributions (dividends) paid?

•  SMH (Van Eck Semiconductor ETF) pays a dividend (distribution) once a year.

While U.S. stocks and ETFs usually pay distributions quarterly (four times a year), SMH pays once a year.

SMH's current share price and long-term chart

Launched in May 2000, it has been in operation for a long time and has shown particularly high growth since 2023.

What are the components of the SMH?

The components and percentages of the VanEck Semiconductor Stock ETF (SMH) are as follows

The major components of SMH include NVIDIA with approximately 201 TP3T, followed by TSMC with 121 TP3T.
TheseAI semiconductor-related stocks alone account for more than 301 TP3T of the total.

Other,NVIDIA-related semiconductor stocksare numerous, and these contribute to the ETF's superior performance.

See also:SMH - VanEck Semiconductor ETF | Holdings & Performance | VanEck

This information indicates that SMH focuses on the major players in the semiconductor industry, and that fluctuations in technological evolution and market demand are expected to affect the performance of the ETF.

What is the difference between the NASDAQ 100 and the SMH?

There are key differences between the NASDAQ 100 and the SMH (VanEck Semiconductor Stock ETF) in terms of market segments covered and constituent stocks.

NASDAQ 100 (NASDAQ100)

The NASDAQ 100 is a stock price index consisting of 100 major companies in the non-financial sector listed on the NASDAQ stock market in the United States.
The index is dominated by technology companies, but also includes companies from sectors as diverse as consumer goods, healthcare, and industrials. Representative constituents include Apple, Amazon, Google (Alphabet), and Facebook (META Inc.).

SMH (VanEck Semiconductor Stock ETF)

SMH, on the other hand, specializes in the semiconductor sector, investing primarily in semiconductor manufacturing and related equipment companies; SMH has a much more specialized focus than the NASDAQ 100, with semiconductor companies such as NVIDIA, Taiwan Semiconductor Manufacturing Corporation (TSMC), and Intel being the main components.

In terms of investment strategy, the NASDAQ 100 is appropriate if you want to diversify across a broad range of technology and non-financial sectors, while SMH is appropriate if you anticipate growth in the semiconductor industry or want a portfolio that is sensitive to industry-specific trends.

Performance comparison between SMH and NASDAQ 100

Looking from 2023, SMH has achieved a return of about 1101 TP3T, while the NASDAQ 100 has grown by 601 TP3T.
During this period, though, high-tech stocks as a whole experienced very strong growth,SMH in particular has outperformed the Nasdaq 100.

This is,SMH has performed very well, especially since it contains many important high-tech stocks that are driving growth.

Performance Comparison Graph between SMH and NASDAQ 100

What is the difference between leveraged ETFs SOXL and SMH?

SMH (VanEck Semiconductor Equity ETF) and SOXL (Direxion Daily Semiconductor Stocks Bull 3x ETF ) are both ETFs related to the semiconductor industry, but there are significant differences in their nature and risk profile.

SOXL (Direxion Daily Semiconductor Stocks Bull 3x ETF )

SOXL is a leveraged ETF that aims to triple the performance of the P Holtzman Semiconductor Index.
In other words, an 11 TP3T increase in the index would increase the value of SOXL by about 31 TP3T, while a 11 TP3T decline would decrease the value by 31 TP3T.

It is very sensitive to daily market movements and while it is suitable for short-term trading, it is considered risky for long-term holdings.

Leveraged ETFs, by their structure, may decrease in value over time (so-called "leverage effect decay").

SOXL's risk and return are greater than SMH's, and it is more susceptible to small movements in the market.
Therefore, SMH is suitable for long-term investments, while SOXL is suitable for active trading to take advantage of short-term market movements.

Which should I invest in SMH, SOXL or NASDAQ 100?

When selecting an ETF, it is important to consider personal factors such as investment goals, risk tolerance, and investment period.
Since SMH, SOXL, and NASDAQ 100 have different characteristics, an appropriate selection should be made based on these factors.

Below is a comparison table to understand the characteristics of SMH, SOXL, NASDAQ 100, and their respective ETFs.

• SMH: (in Japanese)Specializes in the semiconductor industry and is suitable for investments seeking long-term growth. While there are some industry-specific risks, the non-leveraged nature of the fund makes it relatively low-risk.
• SOXL:.It is also specialized in the semiconductor industry, but it is extremely risky because it amplifies daily market movements by a factor of three. It is for active traders who are looking for short-term gains.
• Nasdaq 100:.It invests in leading companies in a wide range of industries, predominantly technology companies, but also covering diverse sectors such as consumer goods and healthcare. An investment choice with the potential for stable long-term growth.

What are the advantages of investing in SMH?

The main advantages of choosing SMH (VanEck Semiconductor Stock ETF) when investing are as follows

Concentrated investment in the semiconductor industry

Because SMH specializes in the semiconductor industry, it can invest in key companies that are expected to grow in the industry. For this reason,The return can be expected to be directly related to the growth of the semiconductor market.

Risk Management through Diversified Investments

SMH by investing in 25 major U.S. semiconductor companies,The risks associated with individual companies can be diversified.This will reduce the impact of a single firm's underperformance on overall performance.

Exposure to growth industries

Semiconductors are at the core of technology evolution, with applications ranging from smartphones to data centers to self-driving cars.An investment in SMH can provide exposure to these growing industries.

Ease and liquidity

As an ETF, it can be purchased and sold just like a stock. This allows investors to easily adjust their positions.

Cost-effectiveness

SMH offers a relatively low expense ratio, allowing for efficient investment without eating into investment returns.

SMH focuses on the development of the technology sector while making it easier for investors to manage market uncertainty.

What are the possible disadvantages of investing in SMH?

There are also several disadvantages to investing in SMH, the main possible ones being

• Industry-specific risks:.Because SMH is focused on the semiconductor industry, it is highly sensitive to industry-specific risks. Industry-specific fluctuations such as technology evolution, product cycles, supply chain issues, and political risks can directly impact ETF performance.
• Market volatilityThe semiconductor industry is highly market volatile, and rapid advances in technology or changes in economic conditions can have a significant impact on market prices. This can cause the value of an investment to fluctuate significantly over a short period of time.
• Sensitivity to economic cycles:Semiconductors are an industry that is sensitive to economic cycles. Depending on the economic cycle, supply and demand may decrease, which directly affects the performance of the industry.
• Increased competition:.The semiconductor market is highly competitive and new technologies and products are constantly being introduced to the market. Firms that lag behind the competition can quickly lose market share, which can affect ETF performance.

It is important to understand these disadvantages and to invest carefully according to one's own risk tolerance and investment goals.

Can SMH be selected as a Nisa target?

• Although it is possible to trade within the general NISA framework, it is not possible to invest in SMH using the "Tsumitate NISA (savings NISA)" and thus cannot enjoy the benefits of the "Tatemono NISA".
• Only domestic investment trusts (and some domestic ETFs) that meet certain requirements can be invested in through the "nasase-tate NISA," so it is not possible to invest in SMH, an overseas ETF.
  The following two mutual funds can be selected as growth investment options instead of reserve investment options
  • Nissay SOX Index Index Fund
  • Nomura Global Sector Investment Series (Global Semiconductor Stock Investment)

RELATED:Semiconducting mutual funds available in the new NISA (Growth Investment Framework)

Which brokerage firms can I buy shares of SMH?

We have listed the major brokerage firms that offer shares in SMH. At these brokerages, you can choose to invest as a CFD (Contract for Difference) in addition to direct stock trading as a foreign stock.

I myself mainly use SBI Securities, but some stocks they handle may not be available for purchase. In such cases, I sometimes use CFDs at Saxo Bank Securities or IG Securities.

summary

This article focuses on SMH, an ETF that concentrates on major U.S. semiconductor stocks, and provides a detailed explanation of its features and the advantages and disadvantages of investing in it.

The semiconductor industry is sensitive to economic cycles, known as the "silicon cycle," which occurs approximately every four years.

However, the current growth with AI technology at its core is not temporary, and the field holds great promise for future development.

Semiconductors are widely used in products essential to daily life and will play a central role in future technological advancements such as automated driving.

While there are many investment options available, "SMH" is an attractive ETF for long-term investment due to its sustained growth potential.