SMH Lags Behind Rival PSI in Semiconductor ETF Showdown
The VanEck Semiconductor ETF (NASDAQ:SMH), which is the largest and most liquid semiconductor ETF on the market, has been outperformed by a rival fund over the past year. SMH's top holding, Nvidia, accounts for 21.7% of the portfolio, but its performance has trailed the rest of the sector.
The reason behind this underperformance is that SMH holds only about 25 stocks and weights them by modified market cap, which pushes megacap winners to the top and keeps them there. This structure worked well when Nvidia was compounding at triple-digit rates, but it has not done as well over the past twelve months.
The Invesco Semiconductors ETF (NYSEARCA:PSI) has been a better performer, returning 111.7% over the same period. PSI tracks a modified equal-dollar-weighted index of about 33 positions, which means it has a more diversified portfolio and captures more of the upside per dollar invested.
The key difference between SMH and PSI is their approach to weighting stocks. While SMH holds only a few large-cap stocks with high weights, PSI spreads its weight among many smaller-cap stocks. This gives PSI an advantage when the broader semi-complex rallies rather than just the AI megacap.