ETF Comparison: VanEck Semiconductor ETF (SMH) Versus iShares Semiconductor ETF (SOXX)

SMH vs SOXX: Total cost of ownership

Both ETFs charge an identical expense ratio of 0.35%, which works out to $35 annually for every $10,000 invested. This is fairly typical for industry-specific ETFs.

However, total cost of ownership isn’t just about the expense ratio. It also includes the implicit cost of trading, such as the bid-ask spread. On this front, both ETFs perform well, with 30-day average bid-ask spreads of 0.025% for SMH

and 0.029% for SOXX

SOXX

.

Verdict: It’s a tie when it comes to total cost of ownership. Both ETFs are competitively priced are, highly liquid, and have options chains.

SMH vs SOXX: Methodology and holdings

The main difference between these ETFs lies in their methodologies, determined by their benchmark indexes.

SMH

tracks the MVIS US Listed Semiconductor 25 Index, which focuses on the largest and most liquid U.S.-listed semiconductor companies. It’s a modified market-cap-weighted index, including only firms that generate at least 50% of their revenue from semiconductors. Holdings are capped at 20%, with semi-annual reconstitution and quarterly rebalancing.

SOXX

tracks the NYSE Semiconductor Index. This is a modified float-adjusted market-cap-weighted index covering the 30 largest U.S.-listed semiconductor companies. Only those classified within the Semiconductors industry under the ICE Uniform Sector Classification schema are eligible.

The difference? Both ETFs are fairly top-heavy, but SMH is significantly more concentrated. The top 15 holdings make up 89.36% of SMH, compared to 78.87% of SOXX.

Nvidia, for example, currently represents 22.21% of SMH’s portfolio, exceeding the 20% cap due to a recent run-up between rebalances. In SOXX, Nvidia accounts for a more reasonable 9.4%.

Verdict: SMH’s concentration at the top is a concern, as a 20% cap is quite liberal in my view. While SOXX is also weighted toward the big players, its composition is much more balanced, which I find preferable for diversification.

SMH vs SOXX: Risk and return

One upside of SMH’s concentration and its liberal 20% cap is that it has allowed Nvidia’s stellar performance to run relatively unchecked within the ETF. In contrast, SOXX’s methodology imposes stricter constraints on individual holdings, capping Nvidia at a lower weight.

Unsurprisingly, SMH

outperforms SOXX

SOXX

over shorter timeframes, delivering superior three-year, one-year, and year-to-date total returns.

Even on a longer-term backtest from July 13, 2001, to November 25, 2024, SMH comes out ahead with a compound annual growth rate (CAGR) of 12.22% versus SOXX’s 10.78%. SMH also wins on a risk-adjusted basis, achieving a Sharpe ratio of 0.47 compared to SOXX’s 0.43.

Interestingly, SOXX has been more volatile than SMH, despite SMH’s higher concentration. SOXX shows a higher three-year standard deviation and longer maximum drawdown duration, although the depth of the drawdowns was similar for both ETFs.

Verdict: SMH

takes the edge here. Its concentrated structure and looser cap have allowed it to capitalize on Nvidia’s growth, leading to better long-term performance and risk-adjusted returns. While SOXX

SOXX

is less concentrated, its greater volatility and slightly lower returns make SMH the stronger performer.

This article is for informational purposes only and does not in any way constitute investment advice. The author may express their own opinions, which may not represent the opinions of ETF Central or its affiliated partners. It is essential that you seek advice from a registered financial professional prior to making any investment decisions.