Complete Guide to Semiconductor ETF Investment: How to Choose Between Taiwan Stocks and US Stocks?

Why Should You Pay Attention to Semiconductor ETFs Now?

From the PC era to the mobile phone era, and now the AI era, each industry iteration is driven by the same core force—semiconductors. Regardless of technological advancements, human demand for chips remains constant. Chips are the “brain” of electronic devices, responsible for computing, storage, and data transmission.

In Taiwan’s stock market, technology stocks account for over 70%, with more than 70% of these related to the semiconductor supply chain. In other words, investing in Taiwan stocks is an indirect investment in semiconductors. But if you want to precisely position yourself in this industry, choosing the right semiconductor ETF is the smart move.

In the US stock market, the Philadelphia Semiconductor Index is on par with the four major US indices, highlighting the strategic importance of semiconductors in the global capital markets.

What Semiconductor ETFs Are Available in Taiwan?

When it comes to Taiwan’s semiconductor ETFs, the first thing to understand is their characteristics: large scale but limited options, mainly because the number of listed semiconductor companies in Taiwan is limited.

00941 CTBC Upstream Semiconductor ETF: The largest semiconductor ETF in Taiwan, mainly investing in semiconductor equipment and materials companies, not directly in wafer foundries or IC design firms. Therefore, its growth potential is relatively limited, making it less suitable for investors aiming to capture core semiconductor profits.

00891 CTBC Key Semiconductor ETF: Selects 30 listed Taiwanese semiconductor companies (with over 50% of revenue from semiconductor-related businesses), covering the entire industry chain from upstream materials and equipment, midstream wafer foundries, to downstream IC design. Notably, this ETF does not use simple market-cap weighting but combines dividend yield, market cap, and ESG factors, with a maximum individual stock weight of 20%. This design makes the portfolio more balanced and stable; while it may lag behind the market in the short term, its long-term performance is relatively steady.

00830 Cathay Fubon Philadelphia Semiconductor ETF: Tracks the Philadelphia Semiconductor Index, including many globally renowned semiconductor companies. This ETF is the closest option in Taiwan to international semiconductor indices.

Conclusion: If you only want to invest in Taiwanese semiconductor companies, 00891 and 00830 are the two most worth considering options.

US Semiconductor ETFs: Gathering the Global Industry Leaders

US semiconductor ETFs are far more numerous and larger in scale than those in Taiwan, mainly because most top global semiconductor companies are listed in the US, including NVIDIA, Broadcom, QUALCOMM, and others.

SMH (VanEck Vectors Semiconductor ETF)

This is the largest semiconductor ETF globally, with assets totaling $21.9 billion. SMH tracks the MVIS US Listed Semiconductor 25 Index, which includes the 25 largest US-listed semiconductor companies by market value.

Key features: Market-cap weighted, with a single stock cap of 20%.

As of June 2024, the top holdings include NVIDIA (24.36%), TSMC ADR (12.89%), Broadcom (7.35%), QUALCOMM (4.98%), etc. NVIDIA’s share exceeds 20%, so in the next quarterly adjustment, its weight will be reduced, which may cause selling pressure.

Advantages: Focuses on industry leaders, with an annualized return of 27.32% over the past 10 years, and high liquidity.

Disadvantages: Over-concentration, with significant impact from fluctuations in a single company. If NVIDIA or TSMC experiences a correction, it will directly affect performance.

SOXX (iShares PHLX Semiconductor ETF)

SOXX is one of the oldest semiconductor ETFs, established in 2001, with assets of $15 billion. It initially tracked the Philadelphia Semiconductor Index but later switched to the ICE Semiconductor Index.

Key features: US-focused, with a maximum individual stock weight of only 8%, excluding companies with ADRs over 10%.

What does this mean? Although TSMC has a large market cap, most of its shares are held in Taiwan, so its weight in SOXX is only 4.24%, far below its actual market ranking. Similarly, the weight of ASML is also suppressed.

Advantages: Diversified stock risk, no single stock dominates.

Disadvantages: Underperformed SMH over the past five years because ASML and TSMC, which performed best in recent years, are limited by the weight cap. This reflects the cost of regional concentration—over-reliance on US-based companies.

( XSD (SPDR S&P Semiconductor ETF)

XSD is issued by State Street, with the smallest assets among these ($1.54 billion), tracking the S&P Semiconductor Select Industry Index, comprising 39 stocks.

Key features: Equal-weighted, mainly consisting of small- and mid-cap semiconductor companies, excluding TSMC and ASML.

Equal weighting means each company starts with the same initial weight, which then adjusts naturally with price movements. Currently, the highest weight is First Solar (4.4%), a company with a market cap of only $30 billion.

Advantages: Highest diversification, lowest risk concentration.

Disadvantages: Performance may lag behind industry leaders during market rallies, making it difficult to enjoy excess returns from the overall industry growth.

) Comparison of the three ETFs

How to Choose the Right Semiconductor ETF?

The key to investing in ETFs is understanding the logic behind the index it tracks. Semiconductors are part of a global division of labor, with upstream, midstream, and downstream leaders scattered across different countries, making it impossible to find a perfect stock selection method.

Investor Types and Selection

Long-term retirement investors (holding for over 10 years):
Should choose SOXX. Although its performance over the past five years has lagged behind SMH, this reflects a crucial fact—the risk of over-reliance on certain superstar stocks. From a retirement perspective, diversification is more important than chasing the highest returns. SOXX’s 8% cap is well-designed to prevent any single company from overly influencing overall performance.

Medium-term growth investors (holding for 3-5 years):
SMH is more suitable. Currently, NVIDIA and TSMC are performing strongly, and SMH’s market-cap weighting allows you to fully enjoy the growth benefits of industry leaders. But beware, this also entails higher concentration risk.

Risk-averse investors:
XSD is suitable for those seeking risk diversification, but be prepared for performance that may underperform the broader market.

How to Combine Taiwan and US Stocks?

The strongest semiconductor companies are concentrated in the US, Taiwan, and Europe. US stocks are the most convenient investment channel because most of these companies have ADRs or are directly listed.

Recommended approach:

• Core holdings: US semiconductor ETFs (choose either SMH or SOXX)
• Satellite allocation: Taiwan semiconductor ETFs (00891 or 00830)

This way, you can enjoy the growth potential of global industry leaders while also leveraging Taiwan’s advantages in wafer foundry.

How to Invest in Semiconductor ETFs?

Account Opening Methods Comparison

Taiwan brokerage account via OTC:

• Advantages: Trade directly in TWD, easy to operate, familiar interface
• Disadvantages: Higher transaction fees, more suitable for long-term holding investors
• Best for: Conservative investors who prefer convenience and less hassle

Online brokerage account:

• Advantages: Lower or zero fees, rich trading tools
• Disadvantages: Limited investment options, leverage restrictions
• Best for: Medium- to long-term investors sensitive to trading costs

Investment Strategies

Diversify: Use ETFs instead of individual stocks to automatically achieve industry diversification. For example, investing in SMH is equivalent to holding 25 global semiconductor leaders, significantly reducing risk compared to holding only NVIDIA or TSMC.

Combine technical and fundamental analysis:

• Fundamentals: Focus on semiconductor industry cycles, AI development progress, supply chain status
• Technicals: Buy at support levels, consider reducing positions at resistance levels

Regular review and adjustment: ETF components are periodically rebalanced according to index rules. As an investor, reviewing your portfolio’s risk level quarterly is sufficient.

Conclusion

Semiconductor ETFs provide a convenient way to invest in this critical industry. With AI technology advancing rapidly, the fundamental support for semiconductors may continue for a long time. Choosing the right ETF is not about chasing the top performance but making rational decisions based on your risk tolerance and investment horizon.

SMH and SOXX each have their advantages—SMH emphasizes concentration on industry leaders, while SOXX focuses on risk diversification. Whichever you choose, long-term holding offers the opportunity to share in the growth of the global semiconductor industry. Now is the perfect time to pay attention to semiconductor ETFs.