The PC market has dipped recently, which hurts many semiconductor stocks. However, semiconductors continue to be indispensable in phones, games, cars, military weapons and even home appliances. Also, cloud computing is increasing the number of devices needed to access the cloud. 

Though semiconductors continue to be an integral part of modern life, no semiconductor fund is bulletproof. It is important to differentiate between how the semiconductor industry is doing and how any particular semiconductor ETF is performing. (See also: The Truth Behind Trading Semiconductor Chip Stocks.)

We chose the top five semiconductor exchange-traded funds (ETFs) based on long-term performance, as much as on their 2018 performance. That's because many of these ETFs seesawed in the first half of 2018, before finally moving higher in the second half. However, longer-term, they all show strong growth.

The semiconductor sector, along with the tech sector, has had a choppy year, due to a variety of reasons, including the potential impact of any U.S.-China trade conflict. But the story that emerges when looking at these ETFs is that they have been very stable and have produced relevant five-year returns. However, many of them struggled in the first part of 2018, before recovering. Investors will need to decide if now is a good time to jump in or whether it would be better to wait. Management is everything. The money managers of the five ETFs listed below have produced strong results. (See also: What ETF Fund Managers Do.)

Overall, it is reasonable to make semiconductor ETFs part of a diversified investment portfolio, but it is vital to perform due diligence and make sure an ETF’s investment goals match the investor’s risk tolerance and time horizon for investing. All information is accurate as of September 28, 2018

1. Direxion Daily Semicondct Bull 3X ETF (SOXL)

This is a leveraged ETF. It tries to beat the PHLX Semiconductor Sector Index by 300%. This makes it a higher-risk ETF, but that higher risk is also the reason returns tend to be higher.

  • Avg. Volume:     611,287
  • Net Assets:        $714.52 million
  • YTD Return:       22.08%
  • 5-year Return:    74.48%
  • Expense Ratio (net):       1.06%

2. ProShares Ultra Semiconductors (USD)

This leveraged ETF seeks to beat the Dow Jones U.S. Semiconductors Index by 200%. It is a high risk, high rewards play best for investors who are short-term bullish on the sector and the market. The ETF's most heavily-weighted stock is Intel, followed by NVIDIA. Average daily trading volume is lower than the other ETFs listed here – something investors should keep in mind as they consider liquidity.

  • Avg. Volume:     22,738
  • Net Assets:        $68.15 million
  • YTD Return:       15.54%
  • 5-year Return:    49.31%
  • Expense Ratio (net):       0.95%

3. Invesco Dynamic Semiconductors Portfolio (PSI)

This ETF attempts to balance growth and risk as it mimics the Dynamic Semiconductors Intellidex Index. The money managers also consider whether a stock is undervalued or overvalued, and to some extent, engage in timing investments.

  • Avg. Volume:     51,993
  • Net Assets:        $309.55 million
  • YTD Return:       11.7%
  • 5-year Return:     27.27%
  • Expense Ratio (net):       0.61

4. VanEck Vectors Semiconductor ETF (SMH)

This ETF uses the MVIS US Listed Semiconductor 25 Index as a benchmark. It invests in both stocks and depositary receipts, though it maintains at least 80% of its assets in stocks that are in the index. Foreign companies are included along with the U.S. firms in the portfolio.

  • Avg. Volume:     5,501,803
  • Net Assets:        $1.05 billion
  • YTD Return:       11.38%
  • 5-year Return:    25.76%
  • Expense Ratio (net):       0.35%

5. iShares PHLX Semiconductor (SOXX)

SOXX does not allow any single security to have a weight of more than 8% of the portfolio. This weighting restriction means SOXX must search beyond U.S. firms to foreign firms that are listed on U.S. stock exchanges. The result is that SOXX has many smaller companies to complement the large U.S. companies in the portfolio, and that means SOXX may be more diverse than other semiconductor ETFs.

  • Avg. Volume:     792,186
  • Net Assets:        $1.63 billion
  • YTD Return:       9.37%
  • 5-year Return:    24.17%
  • Expense Ratio (net):       0.47%

The Bottom Line

Large ETFs in the semiconductor sector performed well in 2017 but have struggled throughout most of 2018, along with the rest of the tech sector. However, returns over the last five years are high and expenses are reasonable, making these better longer-term plays. All of these ETFs are easy to trade, meaning an investor is unlikely to be stuck in a position of wanting to get out but being unable to find a buyer. 

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