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Chip ETF (SMH) Posts Best Q2: 5 Stocks That Led the Way

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The semiconductor sector has bounced sharply from the first-quarter lows with stocks logging in the best quarterly performance since the tech bubble in the early 2000s. Notably, the PHLX Semiconductor Index rose nearly 39% in the second quarter.

Chip stocks have shown strong resilience amid the coronavirus pandemic on stay-at-home trends, which has bolstered demand for gaming chips and data center business. Additionally, rapid adoption of cloud, Internet of Things, autonomous cars, gaming, wearables, VR headsets, drones, virtual reality devices, artificial intelligence, cryptocurrencies, 5G and other advanced information technologies are also fueling growth (read: Best Retail Sales Growth in May: Sector ETF & Stocks to Win).

As semiconductors have been the most important drivers of the overall growth in technology, it is now used in day-to-day life from cars, electronic gadgets to planes and weapons. Chipmakers power much of the world’s technology with their new innovation and set the stage for digitalization in various corners like healthcare, transport, financial systems, defense, agriculture, retail and many others.

Although all semiconductor ETFs have performed remarkably well, VanEck Vectors Semiconductor ETF (SMH - Free Report) is the real winner. The ETF was up almost 30%, marking its best quarter since the fourth quarter of 2001.

SMH in Focus

This fund offers exposure to companies involved in semiconductor production and equipment by tracking the MVIS US Listed Semiconductor 25 Index. It holds 25 stocks in its basket with double-digit concentration on the top two firms. Although United States take the top spot from a country look with 77.7% share in the portfolio, Taiwan, Netherlands, and Switzerland round off the next three spots. The product has managed assets worth $2.2 billion and charges 35 bps in annual fees and expenses. The ETF trades in average daily volume of more than 5 million shares and has a Zacks ETF Rank #2 (Buy) with a High risk outlook (see: all the Technology ETFs here).

Though most of the stocks in the fund’s portfolio delivered strong returns, some stocks gained more than 50% in the second quarter. Below we have highlighted those five best-performing stocks in the ETF with their respective positions in the basket:

Best-Performing Stocks of SMH

ON Semiconductor Corporation (ON - Free Report) : This is an original equipment manufacturer (OEM) of a broad range of discrete and embedded semiconductor components. It gained 74.1% in the second quarter. The stock makes up for 0.8% share in SMH. It has a Zacks Rank #3 (Hold) and a Value Score of B. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Microchip Technology Incorporated (MCHP - Free Report) : This company develops and manufacturers microcontrollers, memory and analog and interface products for embedded control systems, which are small, low-power computers designed to perform specific tasks. Microchip Technology makes up for 2.3% allocation. It has delivered incredible returns of 61% last quarter. The stock has a Zacks Rank #3 and a Growth Score of B.

Teradyne Inc. (TER - Free Report) : This company is a leading provider of automated test equipment. The stock has surged 56.8% last quarter. It currently carries a Zacks Rank #3 and has a Growth Score of B. Teradyne accounts for 1.7% of total assets (read: Top Sector of 1H & Its Top ETFs).

Skyworks Solutions Inc. (SWKS - Free Report) : This company designs, manufactures and markets a broad range of high-performance analog and mixed signal semiconductors that enable wireless connectivity. The stock makes up for 2.6% share in the fund’s basket. It gained 56.7% in the last quarter. SWKS has a Zacks Rank #4 (Sell) and a Growth Score of B.

NVIDIA Corporation (NVDA - Free Report) : This company is the worldwide leader in visual computing technologies and the inventor of the graphic processing unit, or GPU. NVIDIA occupies the third position in the fund’s basket with 8.5% allocation. It has gained 8.5% last quarter. The stock has a Zacks Rank #2 (Buy).

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