A Balanced Approach to Semiconductor Exposure
In the dynamic landscape of the semiconductor industry, the SPDR S&P Semiconductor ETF (NYSEARCA:XSD) has carved out a distinctive niche. This exchange-traded fund (ETF) diverges from the traditional investment strategies of its peers, such as the iShares Semiconductor ETF (NASDAQ:SOXX) and the VanEck Semiconductor ETF (NASDAQ:SMH), by employing a modified equal-weighted index strategy. This approach is designed to ensure a balanced representation of semiconductor companies of varying sizes, from large to small-cap stocks.
The composition of XSD’s portfolio is a testament to its unique strategy. It consists of 40 stocks, but its top 10 holdings account for only 32.7% of its total assets. This stands in stark contrast to the SMH, which has 25 stocks with the top 10 holdings representing nearly three-quarters of its assets and the SOXX, which has 30 stocks with its top 10 holdings constituting 60.1% of its assets. The fund’s largest holding, Nvidia (NASDAQ:NVDA), accounts for only 3.9% of the fund, signaling a less concentrated risk profile than other ETFs where Nvidia is more dominant.
The stock selection within XSD’s portfolio is particularly noteworthy. Eight of its top 10 holdings have Smart Scores of 8 or higher from TipRanks, a proprietary quantitative stock scoring system. These high Smart Scores indicate strong potential for the stocks based on eight key market factors. These high-performing stocks include industry leaders such as Advanced Micro Devices (NASDAQ:AMD), Broadcom (NASDAQ:AVGO), Marvell Technology (NASDAQ:MRVL) and Allegro Microsystems (NASDAQ:ALGM), all of which have earned “Perfect 10” Smart Scores.
When it comes to performance, XSD offers a more nuanced picture. As of January 31, the ETF has returned 5.8% annually over the past three years. While this may seem modest at first glance, a broader view reveals a more impressive track record. Over the past five years, XSD has generated an annual return of 24.5% and over the past decade, the annual return stands at 22.0%. These figures not only outperform the S&P 500’s five-year and ten-year returns of 14.2% and 12.6%, respectively, but also eclipse the tech-heavy Nasdaq’s five-year return of 20.7% and ten-year return of 18.1%.
The ETF’s strategy and portfolio composition underscore its diversified approach to the semiconductor industry. By avoiding overconcentration in a handful of holdings, XSD offers investors a broad representation of the sector. This diversified approach is particularly attractive to those seeking broad exposure to the semiconductor industry, which is known for its rapid innovation and growth potential.
The SPDR S&P Semiconductor ETF features a strategy that provides a diversified and balanced investment in the semiconductor space. Its modified equal-weighted approach has contributed to strong long-term performance, demonstrating the robustness of its portfolio. While short-term returns may present an uneven picture, XSD’s long-term success is remarkable.
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