SOXQ vs SMH vs SOXX: Which Semiconductor ETF Would I Buy

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If you're looking for a way to invest in the massive growth of the semiconductor sector, the three ETFs you're most likely to come across are SOXQ, SMH, and SOXX. At first glance, they look almost interchangeable. They own many of the same large chip companies. They have all benefited from the explosive growth of AI and data centers, and they are all designed to give you targeted access to one of the strongest sectors of the market.

But if you delve deeper into their assets, concentration, performance, and expenses, these three ETFs are not as similar as they seem at first glance. And I believe one of them offers a much better overall package than the others. I actually own SOXQ in my portfolio myself, but that doesn't mean it automatically wins this comparison.

SMH has an extremely strong track record. SOXX has remained one of the most well -known semiconductor ETFs for many years, and each of these funds has its own unique advantages. So today I'll be comparing all three to see how they compare in terms of assets, concentration, performance, risks, and costs.

And at the end, I'll evaluate all three and tell you which semiconductor ETF I would choose if I were choosing between SOXQ, SMH, and SOXX today. But let's start with what you're actually buying with an ETF, as this is where the differences begin. Hi, I'm Greg Hardy, welcome back to the channel, and thank you for being here.

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Thank you. Before we start comparing them, let's quickly clarify what each of these ETFs actually is. Invesco's SOXQ tracks the PHLX Semiconductor Sector Index, VanEck's SMH tracks the MVIS US Listed Semiconductor 25 Index, and iShares' SOXX tracks the NYSE Semiconductor Index. I will also display the number of assets and expense ratios, as we will return to the topic of cost later.

But it 's important to understand that all three are specialized semiconductor ETFs. These are not broad technology funds like VGT or XLK, where you get exposure to software, payment companies, and other areas of technology. You are making a much more focused bet on the semiconductor industry. And that's what makes the comparison interesting, because the question is n't whether semiconductor stocks belong in these funds—of course they do.

The more important question is how each ETF determines which semiconductor companies to give the most weight to. Two funds can own many of the same stocks but produce very different results if one invests significantly more money in companies like Nvidia or Broadcom. And when you look at how SOXQ, SMH, and SOXX are actually structured, this is where these three ETFs start to differ significantly from each other.

So, let's see what's actually inside them. Now let's move on to what I consider to be one of the most important differences between these three ETFs. What they actually own and what weight they give to their largest companies. When I place the top 10 assets side by side, you will see quite a few familiar names.

Nvidia, Broadcom, AMD—they all play major roles in these funds. But don't focus too much on whether a company is simply present in the portfolio. Pay attention to the percentage next to it, because that's where the real differences start to show . One ETF might have 8% of its money in stocks, while another might have 15% or more, and over time this can have a huge impact on returns.

SMH is the one fund that really stands out because of how concentrated it can be in its largest positions. It also gives you access to Taiwan Semiconductor, or TSMC, which is an important distinction when comparing these portfolios. SOXQ and SOXX allocate their money differently between chip developers and semiconductor equipment companies such as Applied Materials and Lam Research.

So, while all three ETFs are betting on the same industry overall, they are not betting exactly the same. I'll put the top 10 asset concentrations for all three on the screen because it gives a much better idea of how dependent each fund is on its largest holdings. And concentration works both ways.

When your biggest investments are in companies like Nvidia and Broadcom, and these stocks are driving the semiconductor market higher, a greater concentration of funds in them can provide incredible returns. But the same thing that helps an ETF outperform the market can become a weakness if the market leaders change.

You are placing a larger bet on a smaller group of companies, and that is one of the most important things to consider, particularly with regard to SMH. And as we will see later, these differences in portfolio structure looked different not only on paper. Now let's move on to the category that probably interests people the most: performance.

I'll display the 1, 3, 5, and 10 year returns so you can compare them, but here's what immediately catches my eye. All of these ETFs have benefited enormously from the semiconductor boom, but they have not benefited equally. SMH has stood out for several longer periods, and when you consider what we just saw in the asset mix, it makes sense.

Its greater concentration on some of the biggest leaders in the semiconductor industry has been a huge advantage. When stocks like Nvidia and Broadcom deliver such tremendous returns , an ETF that invests more in these leaders will naturally reap greater benefits. However, there is one important limitation to this comparison.

SOXQ was launched in 2021, so we don't have a 10- year performance history to compare with SMH and SOXX, and I won't pretend that we do, just to make the table look complete. But based on the periods we can compare, you can still get a pretty clear idea of how these different strategies work. And if we stopped the comparison right there and simply chose the ETF that showed the highest historical returns , the choice might seem obvious.

But there's a reason why I personally didn't choose the ETF with the best historical returns, and to understand why, we need to look at what happens when semiconductor stocks don't rise relentlessly. Of course, there is a price to pay for such incredible returns , as semiconductor stocks can be extremely volatile when the market turns against them.

I'll pull up the data from the drop during one of the biggest industry downturns so you can see how SOXQ, SMH, and SOXX held up when semiconductor stocks were falling. Semiconductor ETFs can provide incredible returns , but you should be prepared to endure periods where a loss of 30%, 40%, or even more is quite possible.

Here we can also see whether SMH's higher concentration creates significantly greater downside risks, or whether the difference between these funds is smaller than you might expect. In any case, I do not consider any of these ETFs as the basis of my portfolio. I treat semiconductor investments as a smaller, ancillary position that can add growth without making my entire portfolio dependent on one industry.

So I don't automatically choose the ETF with the highest historical return, and this is where the other advantages of SOXQ become important. Now let's talk about the area where SOXQ becomes particularly interesting - costs. I will display the current expense ratios for all three funds , as well as the annual cost of ownership of each for a $10,000 investment.

These differences may not seem significant year-over-year , but over a long investment horizon, paying less for similar semiconductor exposure is a definite advantage, and SOXQ is the clear winner among this trio in terms of fees. Of course, I wouldn't choose a worse ETF just to save a few basis points.

Performance and design mean much more to me. But when three ETFs give me access to many of the same companies and the same industry, cost becomes a much more important factor in my choice. And SOXQ's lower expense ratio is one of the reasons I find it such an attractive alternative to SMH and SOXX. There is another practical advantage of SOXQ for my personal investing style, and that is the share price.

SOXQ is currently trading at around $100 a share compared to around $600 for SMH and $560 for SOXX. I want to clarify: an ETF for $90 is not cheaper in terms of valuation than an ETF for $560. And the lower share price doesn't give SOXQ any advantage when it comes to percentage returns. If your broker allows you to buy fractional shares, this difference may not matter at all .

But if you buy entire stocks or regularly invest small amounts, it can affect the ease of forming and rebalancing a position. This was actually one of the reasons why I eventually switched from SMH to SOXQ. Since semiconductors make up only a small portion of my portfolio, I like the ability to add to the position in $90 increments rather than $500 or more at a time.

This in itself doesn't make SOXQ a better investment, but combined with lower expenses, it's a better fit for my investing style. SOXX is a very good fund with a long history, large assets, and high liquidity. But when I compare it directly to SOXQ, I keep coming back to one question. What do I actually get from SOXX that I don't have from SOXQ?

There are differences in indices, assets, and weights, but both ultimately give me the targeted semiconductor exposure I'm looking for. Ultimately, that's why SOXX is the easiest for me to rule out. It's not because there's anything wrong with him . I just don't see enough of an advantage to overpay when SOXQ gives me the access I need to semiconductors at a lower price and with a much lower share value.

SOXX's long history and size may be important to some investors, but for me they don't outweigh the advantages of SOXQ. So, SOXX would come in third in this comparison, and that leaves me with a more difficult choice. The choice remains between SOXQ and SMH. And I think it's a much more complicated decision because these two funds represent different approaches.

SMH is a more aggressive option. It is more concentrated on the largest companies in the semiconductor industry, and this concentration has helped deliver outstanding historical results . If you want to invest more in companies that currently dominate the industry and you are comfortable with the associated higher asset concentration , SMH looks like a very attractive option.

SOXQ offers a more balanced approach , while still providing significant exposure to the industry's largest players. This fund is cheaper to manage, has a much lower share price, and is not as dependent on the success of just one or two companies. And this is where, in my opinion, the decision depends on what you are actually trying to achieve.

If I were looking for a more aggressive bet on semiconductors, I would lean towards SMH. But if I need semiconductors as a small part of a diversified portfolio—which is how I use them— SOXQ makes a lot more sense. So, if I had to rank all three funds, SOXX would come in third place. I repeat, this is a very good semiconductor ETF, but I don't see enough advantages over the other two to justify choosing it.

In second place I would have SMH. And if my only goal were to maximize exposure to the semiconductor companies that currently dominate the market, I would definitely choose SMH. His focus has helped deliver incredible returns, and I can see why someone might choose him based on that track record alone.

But number one for me is SOXQ. And a large part of that is due to how it fits into my overall portfolio. I already have enough assets with high growth potential elsewhere, and semiconductors are just a small position for me. So I don't necessarily need to make this position an even more concentrated bet.

SOXQ gives me a desirable stake in semiconductors with a lower expense ratio, a structure I like, and a share price that allows me to build my position more easily. So, I'm not choosing SOXQ because I'm sure it's guaranteed to outperform SMH. I choose it because I believe it is the best option for the role that a semiconductor ETF should play in my portfolio.

SOXQ, SMH, and SOXX are all quality semiconductor ETFs, but in my opinion, they are designed for slightly different types of investors. If I were looking for a more aggressive, concentrated option and were focused primarily on getting the most out of the major industry leaders, SMH would be extremely difficult to ignore.

But for the role that semiconductors play in my portfolio, I prefer the balance, low cost, and flexibility I get from SOXQ. That's why it's in my portfolio and why I would choose it today. And I think that's ultimately the most important takeaway from this comparison. The ETF with the best historical performance is not automatically the best choice for every portfolio.

You should consider what you already have, the level of concentration you are comfortable with, and the purpose of your investments. But I'm curious what you would do. If you were investing in one semiconductor ETF today, which would you choose: SOXQ, SMH, or SOXX? Let us know in the comments. If this video opened your eyes, don't keep it to yourself.

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