Inside SMH: The Few Stocks Driving Your Semiconductor Returns

Inside SMH: The Few Stocks Driving Your Semiconductor Returns

The fund's big gain wasn't a tide that lifted all boats; it was a rocket powered by a handful of its holdings.

The biggest drag on the VanEck Semiconductor ETF (SMH) over the past year was a stock that fell: Synopsys. That small dip from a single holding seems trivial next to the fund, which returned +138.2% in the same period. But it raises a critical question for anyone who owns this fund: if the biggest loser barely budged, who exactly did all the work to produce that triple-digit gain?

The Engine Room

The answer is that a very small number of companies provided most of the fuel. The single biggest contributor to the fund's return was Micron Technology (MU). Making up 8.0% of the fund, the stock had a substantial return over the past year. The next biggest contributor was Intel (INTC), which added significantly to the fund's performance with its +524.3% return on a 7.3% fund weight. While the fund holds a basket of semiconductor names, its performance was disproportionately powered by a few standout winners.

How Broad Was The Rally?

On the surface, the gains look widespread. Among the fund's 25 largest holdings, 24 rose over the past year. But that doesn't tell the whole story. The gains were highly concentrated. In fact, the five biggest contributors produced about 69% of the combined gains from the holdings measured. The median holding returned +120.2%, a strong number on its own, but still below the fund's overall +138.2% return, which tells you the top performers pulled the average way up.

What This Means For Your Diversification

When you buy an ETF with 26 positions, you might assume you're getting a broadly diversified slice of an industry. With SMH, the reality is more focused. The five largest holdings make up 46.0% of the fund, and the ten largest make up 71.1%. This means your investment is heavily influenced by the fortunes of a handful of companies. The fund is designed to track the MVIS U.S. Listed Semiconductor 25 Index, and that index is, by its nature, concentrated in its largest members.

For an SMH owner, the key takeaway isn't a signal to buy or sell. It's to recognize where your real exposure lies. The fund's journey over the past year was less the story of an entire industry rising together and more the story of a few key stocks, like Micron Technology, delivering exceptional returns. Knowing that is the one thing you can, and should, control.

A Hundred Holdings Is Not Always A Hundred Bets

SMH's gains leaned on a handful of names, so your real exposure is more concentrated than the holdings count suggests. The number of holdings tells you far less than where the returns come from, and few ETF buyers ever check the difference. Our ETF Valuation and Performance Scorecard does it across the whole equity universe at once, ranking every fund by risk-adjusted return and showing how top-heavy each one is.

And for the part of a portfolio where you would rather a system handled the spread, the Trefis High Quality (HQ) Portfolio holds 30 individually screened names, re-balanced by rule, with a track record of outpacing a benchmark that combines all major indices - the S&P 500, S&P Mid-cap, and Russell 2000.