A popular sector of technology, the semiconductors, offers a niche market for the investors. This is also a very competitive ETF market. Semiconductor ETF market is ruled by PowerShares, State Street, iShares and Merril Lynch and they all target a relatively thinner slice of the technology sector. The semiconductor industry in US is run by the giants Intel and Texas Instruments but quite a number of publicly traded companies maintain a material market share. This includes companies like AMD and National Semiconductor.
The four semiconductor ETFs have many similarities including the significant overlaps in holdings. Each of the funds have something different to offer for the investors.
- HOLRDS Merril Lynch Semiconductor (SMH) is the largest ETF in the semiconductor market. It has a total of $725 million in assets and concentrates a large portion of its portfolio dedicated to Intel and Texas Instruments. A total of 23% of the funds are allocated to Intel and 22% to Texas Instruments. The year to date return is best recorded at 43.1% last year. SMH has around 18 holding in total.
- SPDR S&P Semiconductor ETF (XSD) is known as the cheapest of the four semiconductor ETFs. It has the best year to date return till now and is based on the equal weighted index. The allocation of funds includes a small percentage with Intel and Texas Instruments with a total of 8.3% of both amongst the 27 holdings. XSD has an expense ratio of 0.35%.
- iShares North American Technology Semiconductors Index Fund (IGW) is tracking the S&P North American Technology Semiconductors Index. This index is targeting the performance of capital equipment producers and manufacturers of wafers or chips. IGW has the strongest price to earnings ratio and the best year to date return was 52.5% till last year. The expense ratio is 0.48% with a total of 46 holdings.
- PowerShares Dynamic Semiconductor Portfolio (PSI) is uniquely based on the intelligent index “Intellidex”. PSI has total 30 holdings with 10.3% in Intel and Texas Instruments. The expense ratio is 0.60% and the best year to date returns is recorded to be 27.6%.
The competition by the four ETFs is challenged recently by leveraged products from Direxion. The Daily Semiconducotr Bull 3x Shares (SOXL) and Daily Semiconductor Bear 3x Shares (SOXS) are aiming to provide daily returns of 300% and -300% in the PHLX Semiconductor Index. ProShares is also offering a pair of 200% leveraged and inverse leveraged semiconductor ETFs which are linked to the Dow Jones US Semiconductor Index.
The evolution in the semiconductor index has attracted many investors to the semiconductor ETF market. It is proving to be a good addition in the portfolios of investors since the semiconductor industry is growing with an expected sales only in US to cross a total of $225 billion. Last few years projected the growth to be declining but economic experts take this decline to be short term and able enough to gain a larger share in the market.