The Best Semiconductor ETFs in Canada for December 2024
Semiconductor stocks and Canadian ETFs with semiconductor companies have skyrocketed in demand, particularly post-pandemic.
In this article, we’ll dive into some of the best semiconductor ETFs in the country.
What are the top semiconductor ETFs in Canada?
- Horizons Global Semiconductor Index ETF (TSE:CHPS)
- iShares Semiconductor ETF (SOXX)
- SPDR S&P Semiconductor ETF (XSD)
Horizons Global Semiconductor Index ETF (TSE:CHPS)
Horizons has Canada’s first ETF for semiconductors, the Horizons Global Semiconductor Index ETF (TSE:CHPS). The fund is relatively small, with only $47M in assets under management at this point in time. However, it still gives you exposure to the most prominent semiconductor companies on the planet.
Remember, this is a global ETF aiming to establish a global equity allocation of companies. It only has around 65% exposure to North America. Both funds listed below this one have most of their funds in North American semiconductor companies.
In terms of holdings, the fund holds 56 companies, including the most prominent semiconductor stocks in North America and even globally. Nvidia, Broadcom, ASML Holdings, Taiwan Semiconductor, Texas Instruments, Advanced Micro Devices, Qualcomm, and Intel Corp are all inside the top ten holdings.
In terms of total allocation, this ETF is certainly top-heavy. The top 5 holdings comprise nearly 50% of the ETF, and the top 10 holdings account for 64% of total assets.
However, this is not an actively managed fund. In fact, it is an index fund aimed at tracking the Solactive Capped Global Semiconductor Index, net of expenses.
An index fund will aim to track its relevant index, and investors will generally earn the index returns minus expenses. Because this is a capped index, as companies make up more than the allowable limit over time, they’ll be rebalanced downwards. CHPS will aim to track this index as closely as possible.
For an index fund, the management fees are relatively high, with a management expense ratio of 0.55%. This means you’ll pay $5.50 annually per $1000 invested. The fee is not surprising considering two things.
For one, this is a niche ETF, which always comes with higher fees. And secondly, the assets under management are relatively small. The larger a fund becomes, the less it can charge in management fees.
CHPS is relatively new, debuting in mid-2021 during complete semiconductor euphoria. As a result, its performance hasn’t been all that strong. However, considering it has relatively little history, we won’t speak on that much.
It has a distribution of around 0.75% at the time of writing, not much to write home about. However, investors looking to buy this will probably do so for overall growth, not income.
Another concept to consider is that this fund is Canadian-listed and owns US-listed stocks and/or ETFs. This means it is subject to withholding tax on the dividends, even in an RRSP. With such a small yield, this isn’t a major concern, but I wanted to bring it up nonetheless.
iShares Semiconductor ETF (SOXX)
Unlike Horizon’s fund, the iShares Semiconductor ETF (SOXX) by Blackrock has been around for a long time. In fact, it debuted in 2001, making this fund over two decades old. It is also much larger than CHPS, with assets under management of around $7B.
The ETF also has a different benchmark than CHPS, aiming to track the ICE Semiconductor Index. This is something you’ll want to note, as it has a different makeup of top holdings.
The major companies are relatively the same, with NVIDIA, Brodcom, Texas Instruments, and Advanced Micro Devices leading the way. However, despite having fewer holdings than CHPS, it is less concentrated at the top. The top 5 holdings comprise around 38% of assets, and the top 10 are around 55%.
Its exposure is also primarily concentrated in North America, with 87% of the fund’s assets being invested in the United States.
Because of its larger stature, it can offer lower management fees, coming in at 0.35%, or $3.50 annually per $1000 invested. These lower fees allow the company to offer a larger distribution, coming in at around 1%.
Again, however, this isn’t a fund you buy for income. It is more for those looking to achieve maximum returns. Folks interested in income ETFs might look at high yielding ETFs.
And when we look at those total returns, they’ve been impressive. The fund has annualized returns of just over 10% over the last 22 years, and when we shrink that timeframe to 10 years, it vaults to over 23%.
This is due to a combination of a few things. For one, the rapid technological advancements over the last 15 years resulted in skyrocketing demand for semiconductors.
But also, it is due to the COVID-19 pandemic and accelerating valuations of stocks in the sector due to supply issues.
Overall, if you’re looking to buy a semiconductor ETF south of the border and one that primarily focuses on US-based semiconductor stocks, this is definitely one you’ll want to look at.
SPDR S&P Semiconductor ETF (XSD)
The SPDR S&P Semiconductor ETF (XSD) is an interesting one. It contains a much different mix of overall holdings than the other two ETFs listed above and a much more equal-weight strategy.
For example, the largest holding in funds like CHPS and SOXX is NVIDIA at 13% and 9%, respectively. The largest holding in XSD is a mid-cap semiconductor stock Rambus Inc, which makes up only 4% of the fund.
XSD has $1.4B in assets under management at the time of writing and has been around since 2006. So although it is not as old as SOXX, it has still been around for a long time and has accumulated numerous years of rock-solid performance.
Outside of Rambus, the top 5 holdings contain some notable names, such as NVIDIA and Advanced Micro Devices, but also some under-the-radar options, like Marvell Technology and Micron Technology.
Much like every other fund on this list, it has a low distribution, yielding sub 0.5% at the time of writing. It has the same management fees as SOXX, totalling $3.50 annually per $1000 invested.
It is the heaviest-weighted fund on this list regarding US exposure, as 93% of its assets are invested in US-based semiconductor companies.
What are the best-performing semiconductor stocks?
When we think of the best-performing semiconductor stocks over the last few years, we think of companies like Nvidia (NVDA), Taiwan Semiconductor Manufacturing Co (TSM), Advanced Micro Devices (AMD), and Qualcomm (QCOM).
Of these companies, the lowest return over the last half decade has been Qualcomm, with a 16% annualized return. This outperforms any major North American stock market index over that same timeframe. The largest returns? NVIDIA, with a nearly 40% annualized return.
To put this into dollar perspective, $10,000 invested in NVIDIA just 5 years ago would now be worth $52,000.
Remember, past performance is not a guarantee of future results. However, there is no doubt there is still potential here.
Are semiconductor ETFs a good investment for my portfolio?
There is no doubt that the semiconductor industry will continue to grow as technological advancements are made at a rapid pace. Generally, semiconductor ETFs are thought of as solid investments.
Picking individual stocks is complex, and many investors fear they may pick the wrong “horse in the race.” A prime example would be the explanation above. Although Qualcomm would have gotten you 16% annualized returns, you would have missed out on the nearly 40% annualized from NVIDIA.
Therefore, semiconductor ETFs may be wise investments for those who want exposure to the sector but don’t want to pick individual holdings.
If you want exposure to semiconductors, there are limited ETF options in Canada
On the Toronto Stock Exchange, we only have a single ETF from Horizons ETF Management that tracks the semiconductor industry. For that reason, you’ll need to head south of the border and buy US-based ETFs if you want to explore other options outside of the single Canadian one.
This list will mention the Canadian semiconductor ETF and explore some US options for those willing to exchange their Canadian dollars and invest in US ETFs.
Overall, the market for semiconductor ETFs is limited, but there are some robust options
Because this is such a niche industry, there isn’t a need for many ETFs. These three options listed above will give you more than enough exposure to the industry.
If you’re a stickler for keeping your investments in CAD, Horizon’s CHPS is worth a look. You just need to keep in mind that the smaller ETF does come with higher fees, about $2 extra per year for every $1000 you invest relative to the other funds.
If you’re willing to convert your capital to USD, it opens up a few more doors for you as you could look to the iShares fund or SPDR fund. They have lower fees, lower concentration when it comes to their top holdings, and overall larger AUM.
Keep in mind, however, that when you convert to USD, you are not only exposing yourself to these companies, but also the fluctuations in currency.
Investing in the development of semiconductors, semiconductor equipment, the supply of semiconductors, or other various technology ETFs is a bet that technological advancements will continue to be made in the future and at a rapid pace. In my opinion, that is a bet that will likely pay off.