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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?

The ETF industry has long been dominated by products based on market cap weighted indexes, a strategy created to reflect the market or a particular market segment.

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.

On the other hand, some investors who believe that it is possible to beat the market by superior stock selection opt to invest in another class of funds that track non-cap weighted strategies--popularly known as smart beta.

These indexes attempt to select stocks that have better chances of risk-return performance, based on certain fundamental characteristics or a combination of such characteristics.

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 sponsored by Blackrock. It has amassed assets over $7.51 billion, making it one of the largest ETFs in the Technology ETFs. Before fees and expenses, SOXX seeks to match the performance of the PHLX SOX Semiconductor Sector Index.

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

Cost & Other Expenses

Cost is an important factor in selecting the right ETF, and cheaper funds can significantly outperform their more expensive cousins if all other fundamentals are the same.

Annual operating expenses for this ETF are 0.35%, making it one of the least expensive products in the space.

SOXX's 12-month trailing dividend yield is 1.07%.

Sector Exposure and Top Holdings

It is important to delve into an ETF's holdings before investing despite the many upsides to these kinds of funds like diversified exposure, which minimizes single stock risk. And, most ETFs are very transparent products that disclose their holdings on a daily basis.

This ETF has heaviest allocation in the Information Technology sector - 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) .

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

Performance and Risk

The ETF has added about 23.34% so far this year and is up about 3.03% in the last one year (as of 04/12/2023). In the past 52-week period, it has traded between $298.68 and $444.67.

The ETF has a beta of 1.34 and standard deviation of 35.32% for the trailing three-year period, making it a high risk choice in the space. With about 35 holdings, it has more concentrated exposure than peers.

Alternatives

IShares Semiconductor ETF is a reasonable option for investors seeking to outperform the Technology ETFs segment of the market. However, there are other ETFs in the space which investors could consider.

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 $1.53 billion in assets, VanEck Semiconductor ETF has $7.37 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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