Semiconductor ETFs have been rallying this year and are hitting new peaks on several occasions. This is especially true as the pandemic has bolstered demand for chips in leaps and bounds, leading to the worst global shortage in many years.

Semiconductors have been the most important drivers of the overall growth in technology, given the use of chips in day-to-day life from cars, electronic gadgets to planes and weapons. The demand is likely to continue to trend higher given the increased digitization in various corners like healthcare, transport, financial systems, defense, agriculture and retail among others. The rapid adoption of cutting-edge technology like cloud, Internet of Things, autonomous cars, gaming, wearables, VR headsets, drones, virtual reality devices, artificial intelligence, cryptocurrencies, 5G and other advanced information technologies should continue to fuel growth.

The global semiconductor market is expected to grow 12.5% year over year to reach $522 billion in 2021, according to the International Data Corporation. Per the World Semiconductor Trade Statistics (WSTS), the worldwide semiconductor market is expected to surge 25% in 2021 following 6.8% growth in 2020. All major product categories will likely see increases with memory set to register the largest revenue growth of 37.1%, followed by 29.1% growth in the analog segment and 26.2% in logic (read: 4 Chip ETFs You Should Not Ignore).

Further, the semiconductor space has also been witnessing mergers and acquisitions, providing a boost to stock prices. Advanced Micro Devices (AMD Quick QuoteAMD - Free Report) has agreed to buy field-programmable chipmaker Xilinx for $35 billion while Western Digital (WDC Quick QuoteWDC - Free Report) is planning to merge with Japan’s Kioxia in a deal exceeding $20 billion. Nvidia (NVDA Quick QuoteNVDA - Free Report) is also in the process of acquiring UK-based chip designer Arm Ltd from Japan's SoftBank Group Corp for about $40 billion.

ETFs to Tap

Given the bullish trend, semiconductor ETFs are soaring this year. Below we have highlighted these in detail.  All these have a top Zacks ETF Rank #1 (Strong Buy):

iShares PHLX Semiconductor ETF (SOXX Quick QuoteSOXX - Free Report)

This ETF follows the PHLX SOX Semiconductor Sector Index and offers exposure to 30 U.S. companies that design, manufacture and distribute semiconductors. The fund has amassed $7.4 billion in its asset base and trades in a solid average volume of around 668,000 shares a day. It charges 43 bps in fees a year from its investors (read: Semiconductor ETF Hits New 52-Week High).

VanEck Vectors Semiconductor ETF (SMH Quick QuoteSMH - Free Report)

This fund provides exposure to 25 securities by tracking the MVIS US Listed Semiconductor 25 Index. The product has managed assets worth $6 billion and charges 35 bps in annual fees and expenses. It is heavily traded with volume of around 3.1 million shares per day.

SPDR S&P Semiconductor ETF (XSD Quick QuoteXSD - Free Report)

This fund tracks the S&P Semiconductor Select Industry Index, holding 40 stocks in its portfolio. It has amassed $1.1 billion in its asset base while trades in an average daily volume of about 53,000 shares. It charges 35 bps in fees per year.

Invesco Dynamic Semiconductors ETF (PSI Quick QuotePSI - Free Report)

This fund tracks the Dynamic Semiconductor Intellidex Index, holding 31 securities in its basket. It has AUM of $696.2 million and sees moderate average daily volume of 31,000 shares. The expense ratio is 0.57% (read: Chip Shortages: ETF Winners and Losers).

First Trust Nasdaq Semiconductor ETF (FTXL Quick QuoteFTXL - Free Report)

This fund offers exposure to the most-liquid U.S. semiconductor securities based on volatility, value and growth by tracking the Nasdaq US Smart Semiconductor Index. Holding 30 stocks in its basket, FTXL has accumulated $77.5 million in AUM. The average trading volume is light at around 7,000 shares and expense ratio is 0.60%.