Key insights
- The article compares two major semiconductor ETFs, SMH and SOXX, highlighting their differing portfolio constructions and top holdings, particularly Nvidia and TSMC. While both have seen significant gains driven by AI, the author favors SOXX due to its broader diversification and inclusion of mid-cap stocks, anticipating a continued 'catch-up' trade from companies like AMD and Micron. This suggests a potential for continued strength in the semiconductor sector, with a slight preference for more diversified exposure.
The artificial intelligence (AI) build-out has made semiconductors one of the market's hottest sectors. The two biggest ETFs in this category -- the VanEck Semiconductor ETF (SMH +5.00%) and the iShares Semiconductor ETF (SOXX +5.87%) -- are both up more than 100% over the past year and have 10-year average annual returns of well over 30%.
While there is a 71% overlap across the funds' portfolios, there is a difference in construction. The VanEck ETF selects companies based on market capitalization, revenue, and trading volume. It limits the portfolio to 25 stocks. The iShares ETF holds stocks classified as belonging in the semiconductor industry and holds around 30 names.
Those strategies sound similar, but they produce very different holdings at the top of the portfolios.
The iShares Semiconductor ETF places caps on the allocations to individual stocks, which is why you see a little less concentration. The biggest difference comes in Nvidia's weighting. SMH has nearly triple the investment that SOXX does. The other major difference is TSMC. It's 9.5% of SMH's portfolio, but only 2.5% of SOXX's.
The VanEck Semiconductor ETF has virtually its entire portfolio in large caps, while the iShares Semiconductor ETF is roughly 80% large caps and 20% mid-caps.
Basically, SMH is a more concentrated investment in the megacap leaders. SOXX is a little more diversified (including smaller businesses) and holds a few more companies overall.
Some of the largest market gains over the past few months have come from Micron Technology and AMD, whose performance is now catching up with megacaps Nvidia and TSMC. I see this "catch-up" trade continuing to work in 2026, and I prefer that the iShares Semiconductor ETF is a little more broadly invested across the sector.
That makes it the better choice right now.