A Diversified Approach in the Semiconductor Sector
The SPDR S&P Semiconductor ETF (NYSEARCA:XSD), managed by State Street Global Advisors, stands out in the semiconductor sector with its unique portfolio diversification strategy. This exchange-traded fund (ETF) is designed to mirror the S&P Semiconductor Select Industry Index, which is a subset of the expansive S&P Total Market Index (TMI). XSD’s distinctive modified equal-weighted index approach aims to provide a balanced representation across various market capitalizations within the semiconductor industry.
XSD’s portfolio is composed of 40 stocks, with the top ten holdings making up only 32.7% of its total assets. This is a stark contrast to other leading semiconductor ETFs, such as the VanEck Semiconductor ETF (NASDAQ:SMH) and the iShares Semiconductor ETF (NASDAQ:SOXX), where a more significant percentage of assets is typically concentrated in the top holdings. For example, Nvidia (NASDAQ:NVDA), which is the largest holding in SMH, accounts for 24.8% of its assets, while in XSD, Nvidia’s share is merely 3.9%. This strategic allocation allows XSD to provide a more diversified exposure to the semiconductor industry, mitigating the risk of overconcentration in a limited number of stocks.
The ETF’s holdings are not only diversified but also include several companies that have received high Smart Scores from TipRanks, a proprietary quantitative stock scoring system. This system evaluates stocks on a scale from one to ten, based on eight key market factors. Companies such as Advanced Micro Devices (NASDAQ:AMD), Broadcom (NASDAQ:AVGO), Marvell Technology (NASDAQ:MRVL) and Allegro Microsystems (NASDAQ:ALGM) have all achieved ‘Perfect 10’ Smart Scores, suggesting a strong potential for performance. XSD itself has earned a respectable Smart Score of 7 out of 10.
In terms of performance, XSD has demonstrated commendable results over the long term. As of January 31, the ETF has realized an annual return of 5.8% over the past three years, 24.5% annually over the past five years and 22.0% annually over the past decade. These figures are particularly impressive when compared to major indices such as the S&P 500 and the Nasdaq, underscoring the strength of XSD’s diversified investment approach. While the three-year performance may appear modest, the five- and ten-year returns are especially significant, illustrating the ETF’s ability to sustain strong performance over longer periods. This reflects the dynamic and evolving nature of the semiconductor industry, as well as XSD’s strategic placement within this competitive landscape.
The SPDR S&P Semiconductor ETF has carved a niche for itself as a differentiated entity in the semiconductor sector, backed by a diversified portfolio and a history of solid long-term performance. Its methodical approach to weighting facilitates a more even exposure to the industry, which has translated into remarkable returns over time. The selection of highly rated stocks within its portfolio emphasizes the ETF’s dedication to quality and its potential for ongoing success.
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