Investing in semiconductor ETFs can be a smart way to gain exposure to the rapidly growing technology sector. Semiconductors are the backbone of modern electronics, powering everything from smartphones to advanced AI systems. Here, we explore some of the best semiconductor ETFs available to Canadian investors.
Why Invest in Semiconductor ETFs?
Growth Potential
The semiconductor industry is at the forefront of technological advancements, driving innovation in various fields such as artificial intelligence (AI), 5G, and autonomous vehicles. Leading companies like NVIDIA, AMD, and TSMC have shown remarkable growth due to their critical role in these cutting-edge technologies.
NVIDIA (NVDA): NVIDIA’s stock price increased by approximately 120% over the past year, driven by high demand for its GPUs, which are essential for AI, gaming, and data center applications.
Advanced Micro Devices (AMD): AMD saw its stock price rise by about 80%, benefiting from strong sales of its CPUs and data center processors, which compete directly with Intel.
Taiwan Semiconductor Manufacturing Company (TSMC) (TSM): TSMC’s stock increased by roughly 50%, supported by its position as the world’s largest contract chip manufacturer, with significant demand from clients like Apple and NVIDIA.
| Company Name | Stock Price Increase | Key Performance Drivers |
|---|---|---|
| NVIDIA (NVDA) | ~120% | High demand for gaming GPUs, AI applications, data centers |
| Advanced Micro Devices (AMD) | ~80% | Competitive CPUs, data center processors, gaming market |
| Taiwan Semiconductor (TSMC) (TSM) | ~50% | Demand from major clients, leading-edge technology |
| Intel Corporation (INTC) | ~20% | Demand for PCs and data centers, substantial investments |
| Broadcom (AVGO) | ~30% | Diversified portfolio, networking, broadband demand |
Diversification
Investing in a semiconductor ETF provides diversification within the semiconductor sector, reducing the risk associated with investing in individual stocks. By holding a broad range of semiconductor companies, ETFs mitigate the impact of any single company’s performance on the overall investment. For example:
Accessibility
ETFs offer an easy and cost-effective way for Canadian investors to gain exposure to international semiconductor companies. They allow investors to participate in the growth of leading semiconductor firms without needing to invest directly in foreign markets.
1. iShares PHLX Semiconductor ETF (SOXX)
While not a Canadian-specific ETF, the iShares PHLX Semiconductor ETF (SOXX) is accessible to Canadian investors and is one of the most popular semiconductor ETFs. It tracks the performance of the PHLX Semiconductor Sector Index, which includes companies primarily involved in the design, distribution, manufacture, and sale of semiconductors.
Key Features:
- Expense Ratio: 0.46%
- Top Holdings: NVIDIA, Intel, Texas Instruments
- Dividend Yield: Approximately 0.73%
- Performance: Historically strong, driven by the growth of the semiconductor industry.
2. VanEck Vectors Semiconductor ETF (SMH)
Another U.S.-based but widely available option is the VanEck Vectors Semiconductor ETF (SMH). This ETF tracks the MVIS US Listed Semiconductor 25 Index, which provides exposure to the largest and most liquid companies in the semiconductor industry.
Key Features:
- Expense Ratio: 0.35%
- Top Holdings: Taiwan Semiconductor Manufacturing, NVIDIA, Intel
- Dividend Yield: Approximately 0.62%
- Performance: Consistently solid returns, benefiting from the sector’s overall growth.
3. Invesco Dynamic Semiconductors ETF (PSI)
The Invesco Dynamic Semiconductors ETF (PSI) is designed to track the performance of the Dynamic Semiconductor Intellidex Index, which evaluates companies based on a variety of investment criteria, including fundamental growth, stock valuation, investment timeliness, and risk factors.
Key Features:
- Expense Ratio: 0.56%
- Top Holdings: Broadcom, NVIDIA, Advanced Micro Devices
- Dividend Yield: Approximately 0.34%
- Performance: Focused on dynamic and innovative semiconductor companies, offering strong potential for growth.
4. Horizons Global Semiconductor Index ETF (CHPS)
For a Canada-specific option, the Horizons Global Semiconductor Index ETF (CHPS) provides Canadian investors direct exposure to global semiconductor companies. This ETF seeks to replicate the performance of the Solactive Capped Global Semiconductor Index, net of expenses.
Key Features:
- Expense Ratio: 0.60%
- Top Holdings: Broadcom, Intel, Advanced Micro Devices
- Dividend Yield: N/A
- Performance: Offers a diverse exposure to global leaders in the semiconductor industry.
How to Invest
Canadian investors can purchase these ETFs through their brokerage accounts (such as CIBC investors’ edge). It’s important to consider factors like the expense ratio, historical performance, and the specific holdings of each ETF to align with your investment goals.
Conclusion
Semiconductor ETFs present an exciting opportunity for Canadian investors looking to tap into the growth of the technology sector. Whether opting for global ETFs like SOXX or SMH, or a more Canada-focused option like CHPS, there are various choices to suit different investment strategies. Always conduct thorough research or consult with a financial advisor to ensure these investments align with your financial goals and risk tolerance.
For more insights on ETFs and other investment opportunities, continue exploring our blog for the latest updates and tips.