Shining Semiconductor ETFs

Technology, the largest sector weight in the S&P 500, topped the broader market last year with much of that strength attributable to semiconductor stocks. And when discussing strong semiconductor names, the conversation must include NVIDIA Corporation NVDA.

The Nvidia Push

Shares of Nvidia have more than tripled over the past year, as the chip maker has reached “story stock” status. Nvidia's ascent has been helpful to the major semiconductor exchange-traded funds, including the iShares S&P NA Tec. Semi. Idx. Fd.(ETF) SOXX.

“The technology sector outperformed the S&P 1500 index in 2016, driven in part by the strength of semiconductor and semi equipment industry. While software and Internet stocks lagged the broader market, semiconductors (up 26 percent) and semiconductor equipment (42 percent) were among the sector’s bright spots. CFRA remains bullish on many semi securities, which helps support our view on a variety of related ETFs,” said CFRA Research in a note out Tuesday.

SOXX, home to over $646 million in assets under management, allocates nearly 9 percent of its weight to Nvidia, making the soaring chip name that ETF's largest holding. Intel Corporation INTC, the largest semiconductor maker, is the second-largest holding in SOXX at nearly 8.1 percent.

“In addition to US stocks, the ETF has exposure to companies based in Singapore and Taiwan, The ETF trades on average 515,000 shares on a daily basis and has a 0.48 percent net expense ratio,” said CFRA.

Another ETF With Substantial Nvidia Weight

The PowerShares Dynamic Semiconductors (ETF) PSI is up more than 59 percent over the past year and was last year's best-performing non-leveraged technology ETF. Nvidia is the largest allocation of the 30 stocks held by PSI at 5.6 percent of the ETF's weight.

Strong Semiconductor ETF Without Significant Nvidia Weight

With nearly $576 million in assets under management, the VanEck Vectors Semiconductor ETF SMH is the second-largest chip ETF behind the aforementioned SOXX. Although SMH has been a solid performer in its own right over the past year, the ETF's weight to Nvidia is not significant.

SMH allocates 5.5 percent of its weight to Nvidia, an allocation dwarfed by the 13.5 percent SMH devotes to Intel.

“While sub-industry exposure is similar to the SOXX index, exposure to Taiwan is much greater, with CFRA Buy-recommended Taiwan Semiconductor Mfg. Co. Ltc. (ADR) TSM as the largest holding. SMH has a 0.35 percent net expense ratio. Both SOXX and SMH have hefty weightings in large-cap stocks,” said CFRA.

The research firm has Marketweight ratings on SOXX and PSI and an Overweight rating on SMH.