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The semiconductor corner of the broad technology market continued its winning streak with the start of the New Year. This is especially true as the S&P Semiconductor Select Industry Index climbed 6.8% in the first few days of 2018 trading compared with gains of 4.6% for the S&P 500 Information Technology S&P 500 index and 2.8% for the S&P 500 Index (read: S&P 500 Tops 2,700: ETFs & Stocks Outperforming to Start 2018).

As semiconductors have been the most important driver of the overall technology growth, it is now used in day-to-day life from cars, electronic gadgets to planes and weapons. Robust demand for memory chips and other semiconductor products owing to the rapid adoption of cloud, Internet of Things, autonomous cars, gaming, wearables, VR headsets, drones, virtual reality devices, artificial intelligence, cryptocurrencies, and other advanced information technologies are fueling huge growth in the space.

In fact, global semiconductor sales picked up 21.5% year over year to reach its highest-ever monthly sales of $37.7 billion in November, and are on track to surpass $400 billion for the first time, representing growth of 20.6% year over year for 2017, according to the World Semiconductor Trade Statistics (WSTS). The agency expects sales growth to slow down modestly to 7% in 2018, as the so-called "super-cycle" in chip demand will fade slightly (read: Bitcoin ETFs: What Lies Ahead in 2018?).

While this is true, a combination of other factors like a stabilizing PC market and waves of consolidation would boost semiconductor stocks higher. While Qualcomm (QCOM - Free Report) rejected Broadcom's (AVGO - Free Report) initial buyout offer worth $130 billion in late 2017, the latter is still in the fight to acquire the communications’ chipmaker. Meanwhile, Qualcomm is still trying to close its $47 billion acquisition of NXP Semiconductors NXPI, which was announced in October 2016.

In another major deal, Marvell Technology Group (MRVL - Free Report) is also in the process of acquiring smaller rival Cavium Inc. (CAVM - Free Report) for about $6 billion. The transaction is expected to be completed by mid-2018. Other potential takeover candidates include Cypress Semiconductor (CY - Free Report) , Teradyne TER, Silicon Labs SLAB), Lattice Semiconductor (LSCC - Free Report) , MaxLinear MXL, Nanometrics (NANO - Free Report) and Micron Technology MU.

The upside in the sector is further confirmed by the Zacks Industry Rank as more than three-fourths of semiconductor industries actually have a solid Rank at the time of writing. Wafer Components, Memory, Wafer Fabrication and General have a Zacks Rank in the top 6% while other segments like Electronics, Radiofrequency, Analog, Circuit Foundry, Discretes, Power and Programmable Logic have ranks in the top 42%. This suggests strong future growth and smooth trading in this corner of the technology world.

ETFs to Play

Given an optimistic outlook, investors seeking to ride out the surging space in a diversified way could consider the following five ETFs. Any of these funds could make for a compelling choice given their top Zacks ETF Rank #1 (Strong Buy), suggesting their continued outperformance in the months ahead. All these gained at least 6% in the initial days of 2018 (see: all the Technology ETFs here).

iShares PHLX Semiconductor ETF (SOXX - Free Report)

This ETF follows the PHLX SOX Semiconductor Sector Index and offers exposure to 30 firms with heavy concentration on the top five firms accounting for at least 7% share each. It has amassed $1.6 billion in its asset base and trades in a solid average volume of around 515,000 shares a day. The charges 48 bps in fees a year from investors.

VanEck Vectors Semiconductor ETF (SMH - Free Report)

This fund provides exposure to 26 securities by tracking the MVIS US Listed Semiconductor 25 Index. It is concentrated on the top two firms with double-digit exposure each. The product has managed assets worth $1.3 billion and charges 36 bps in annual fees and expenses. It is heavily traded with a volume of more than 3.6 million shares per day.

PowerShares Dynamic Semiconductors Fund (PSI - Free Report)

This fund tracks the Dynamic Semiconductor Intellidex Index, holding 30 securities in its basket, with each accounting less than 5.7% of assets. The product has AUM of $400.5 million and sees a moderate average daily volume of 86,000 shares. Expense ratio comes in at 0.63% (read: Top-Ranked ETFs & Stocks That Crushed the Market in 2017).

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

This fund tracks the S&P Semiconductor Select Industry Index, holding 36 stocks in its portfolio. It is widely spread across a number of securities, with none holding more than 3.35% share. The fund has AUM of $366 million and an average daily volume of about 83,000 shares. It charges 35 bps in fees per year.

First Trust Nasdaq Semiconductor ETF (FTXL - 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, it has a diverse exposure across components with each holding less than 8.7% of assets. FTXL has accumulated $30.3 million in AUM while average trading volume is light at around 8,000 shares. It charges 0.60% in expense ratio.

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