Exchange Traded Funds (ETFs)

Invest in Large-Cap Semiconductors with This Fund

The VanEck Vectors Semiconductor ETF (NASDAQ:SMH) is an open-ended fund that tracks a market-cap-weighted index of 25 of the largest U.S.-listed semiconductor companies.

This exchange-traded fund (ETF) is highly concentrated in common stocks and depositary receipts of U.S.-listed semiconductor companies. Mid-cap companies and foreign companies listed in the United States can also be included.

To be initially eligible, 50% of company revenues must be primarily in the production of semiconductors and semiconductor equipment. The top 50 eligible companies by market cap are then given two separate ranks based on free-float market capitalization in descending order and three-month average daily trading volume in descending order.

Then, those two ranks are summed, and the top 25 companies are selected. A capping scheme is applied to ensure diversification and more weight is given to the larger companies.

The Index seeks to track the most liquid companies in the industry based on market capitalization and trading volume. Index methodology favors the largest companies in the industry, leaving SMH with over 98% of its holdings in large-cap companies. Its portfolio may include both domestic and U.S.-listed foreign companies to provide enhanced industry representation.

Source: StockCharts.com

The fund currently trades around $241 and has a 0.62% yield. Its inception was in May 2000. With an expense ratio of 0.35%, the fund is relatively inexpensive to hold compared to other ETFs, and it has an average spread of 0.01%.

SMH seeks to replicate as closely as possible, before fees and expenses, the price and yield performance of the MVIS US Listed Semiconductor 25 Index (MVSMHTR), which is intended to track the overall performance of companies involved in semiconductor production and equipment. Plus, semiconductor stocks generally have pulled back in recent weeks, so those looking to gain exposure to the sector can do so now for a nice discount compared to just a month ago.

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As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.