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Is iShares Semiconductor ETF (SOXX) a Strong ETF Right Now?

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A smart beta exchange traded fund, the iShares Semiconductor ETF (SOXX - Free Report) debuted on 07/10/2001, and offers broad exposure to the Technology ETFs category of the market.

What Are Smart Beta ETFs?

Products that are based on market cap weighted indexes, which are strategies designed to reflect a specific market segment or the market as a whole, have traditionally dominated the ETF industry.

A good option for investors who believe in market efficiency, market cap weighted indexes offer a low-cost, convenient, and transparent way of replicating market returns.

However, some investors believe in the possibility of beating the market through exceptional stock selection, and choose a different type of fund that tracks non-cap weighted strategies: smart beta.

Based on specific fundamental characteristics, or a combination of such, these indexes attempt to pick stocks that have a better chance of risk-return performance.

The smart beta space gives investors many different choices, from equal-weighting, one of the simplest strategies, to more complicated ones like fundamental and volatility/momentum based weighting. However, not all of these methodologies have been able to deliver remarkable returns.

Fund Sponsor & Index

The fund is managed by Blackrock. SOXX has been able to amass assets over $7.24 billion, making it one of the largest ETFs in the Technology ETFs. SOXX seeks to match the performance of the PHLX SOX Semiconductor Sector Index before fees and expenses.

The ICE Semiconductor Index measures the performance of U.S. traded securities of companies engaged in the semiconductor business.

Cost & Other Expenses

Expense ratios are an important factor in the return of an ETF and in the long-term, cheaper funds can significantly outperform their more expensive cousins, other things remaining the same.

Annual operating expenses for SOXX are 0.35%, which makes it one of the least expensive products in the space.

SOXX's 12-month trailing dividend yield is 1.02%.

Sector Exposure and Top Holdings

Most ETFs are very transparent products, and disclose their holdings on a daily basis. ETFs also offer diversified exposure, which minimizes single stock risk, though it's still important for investors to research a fund's holdings.

SOXX's heaviest allocation is in the Information Technology sector, which is about 100% of the portfolio.

When you look at individual holdings, Broadcom Inc (AVGO - Free Report) accounts for about 8.92% of the fund's total assets, followed by Texas Instrument Inc (TXN - Free Report) and Nvidia Corp (NVDA - Free Report) .

SOXX's top 10 holdings account for about 49.12% of its total assets under management.

Performance and Risk

The ETF return is roughly 22.45% and is down about -9.21% so far this year and in the past one year (as of 02/06/2023), respectively. SOXX has traded between $298.68 and $504.63 during this last 52-week period.

The fund has a beta of 1.33 and standard deviation of 40.45% for the trailing three-year period, which makes SOXX a high risk choice in this particular space. With about 35 holdings, it has more concentrated exposure than peers.

Alternatives

IShares Semiconductor ETF is an excellent option for investors seeking to outperform the Technology ETFs segment of the market. There are other ETFs in the space which investors could consider as well.

SPDR S&P Semiconductor ETF (XSD - Free Report) tracks S&P Semiconductor Select Industry Index and the VanEck Semiconductor ETF (SMH - Free Report) tracks MVIS US Listed Semiconductor 25 Index. SPDR S&P Semiconductor ETF has $1.30 billion in assets, VanEck Semiconductor ETF has $7.46 billion. XSD has an expense ratio of 0.35% and SMH charges 0.35%.

Investors looking for cheaper and lower-risk options should consider traditional market cap weighted ETFs that aim to match the returns of the Technology ETFs.

Bottom Line

To learn more about this product and other ETFs, screen for products that match your investment objectives and read articles on latest developments in the ETF investing universe, please visit Zacks ETF Center.

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