Bull vs. Bear: Can Semiconductor ETFs Maintain Their Return Trajectory?

Bull vs. Bear is a weekly feature where members of the VettaFi writers’ room take opposite sides for a debate on controversial stocks, strategies, or market ideas — with plenty of discussion of ETF ideas to play either angle. For this edition of Bull vs. Bear, Elle Caruso and Karrie Gordon discuss the likelihood of continued strong returns for semiconductor ETFs.

Elle Caruso, staff writer, VettaFi: Hi, Karrie! Semiconductor ETFs are dominating the top spots on VettaFi’s list of 100 Highest Non-Leveraged 5 Year ETF Returns. The VanEck Semiconductor ETF (SMH), the SPDR S&P Semiconductor ETF (XSD), the iShares Semiconductor ETF (SOXX), and the Invesco Dynamic Semiconductors ETF (PSI) are four of the five top-performing ETFs, each boasting five-year returns above 20% annualized.

These returns are attractive, but many investors are worried it’s too late to invest in semiconductor ETFs now. Personally, however, I think it’s a great time as there are many tailwinds for the space.

Karrie Gordon, staff writer, VettaFi: Elle, I’m thrilled to talk about something I find extremely fascinating, and not just for the opportunities semiconductors provide for society as a whole. Talking semiconductors is a great lens for looking at several big market and economic trends this year. This includes the ongoing role of deglobalization, the dangers of overvaluations and concentration risk, and the risks tied to thematic investing.

Semiconductors’ Role in the Booming AI Industry

Caruso: In 2023, we can’t talk about semiconductor ETF without delving into AI. AI is being referred to as the biggest margin tailwind and productivity increases ever seen in the economy.

The improvement in AI is different than prior tech investment cycles due to its reliance on existing infrastructure. AI can move at an extremely fast pace as it’s a purely digital innovation.

There is an ecosystem of companies that enable us to be at this moment in history where AI is becoming very real and tangible in everyday lives – and chip makers are integral participants.