The semiconductor industry is showing a lot of positive growth signs lately despite broader market headwinds. Recently, Semiconductor Industry Association reported that global semiconductor sales totaled $36.2 billion for the month of August, driven higher by a 23.6% increase in sales in the Americas. Separately, Taiwan Semiconductor Manufacturing (NYSE: TSM), the world's leading chip foundry, reported better-than-expected sales for the month of September, raising forecasts for a strong third quarter earnings season for chipmakers.
The sector as a whole has remained largely unscathed from the pandemic-driven global financial crisis, with many chipmakers benefiting from the remote learning and business driving the need for personal computers. Semiconductors are also the driving forces behind the outperforming tech industry, with chipmakers powering popular market trends like 5G innovation, mobile technology, and electric vehicles.
The industry has also kept busy with large completed and rumored acquisitions like NVIDIA's (NASDAQ: NVDA) $40 billion purchased on Arm Semiconductors from SoftBank Group (OTC: SFTBY) and Advanced Micro Devices (NASDAQ: AMD) reported talks to buy rival Xilinx (NASDAQ: XLNX) creating positive momentum. Additionally, shareholders of Analog Devices (NASDAQ: ADI) and Maxim Integrated Products (NASDAQ: MXIM) have also approved the pair's pending merger proposals, with Analog's Chief Executive Vincent Roche stating that the two will "drive the next wave of semiconductor growth."
Like all types of investing, exchange-traded funds are always a less-risky bet by providing exposure to a board swath of an industry or trend rather than picking and choosing single companies that may underperform.
Popular chipmaker ETFs like VanEcks Semiconductor ETF (NASDAQ: SMH), iShares PHLX Semiconductor ETF (NASDAQ: SOXX), and Technology Select Sector SPDR Fund (NYSE: XLK), are all up about 50% for their year-to-dates', outperforming the S&P 500 (NYSE: SPY) and tech-heavy Nasdaq (NASDAQ: QQQ), which are up roughly 20% and 30%, respectively.
Here's a look inside the ETFs:
VanEcks Semiconductor ETF (SMH): SMH follows the MVIS U.S. Listed Semiconductor 25 Index, which focuses on many of the largest chipmakers in developed markets listed on U.S stock exchanges. Its largest holdings include Taiwan Semiconductor Manufacturing, NVIDIA, and Intel (NASDAQ: INTC).
iShares PHLX Semiconductor ETF (SOXX): SOXX is the largest chipmaker ETF, holding $3.65 billion in assets. This fund holds both foreign and domestic firms, ensuring even weighting among the roughly 125 stocks in its portfolio by capping its top holdings at about 8%. SOXX's top holdings currently are Qualcomm (NASDAQ: QCOM) and Texas Instruments (NASDAQ: TXN).
Technology Select Sector SPDR Fund (XLK): XLK follows an index of technology stocks within the S&P 500. While XLK is not a strict semiconductor ETF, chipmakers are about 17% of its holdings, with other top holdings including semiconductor-enabled technologies like electronic devices and software development enterprises. The fund's top holdings include Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT).