Guide To Semiconductor ETFs

For investors looking to make a play on the technology sector through ETFs, there are a number of options offering varying degrees of exposure. The PowerShares QQQ Trust (QQQQ) tracks the Nasdaq 100 Index, meaning it is tilted heavily towards the technology sector (about 65% of its holdings), but maintains moderate exposure to health care and consumer discretionary companies as well. For investors looking to make a pure play on technology, there are several broad-based technology funds, such as XLK and IYW, that invest in various technology-related companies. But there are also technology ETFs offering far more specialization, including funds focusing on software (IGV and PSJ), internet architecture (IAH), nanotechnology (PXN), and several other.

Semiconductor ETFs:

Merrill Lynch Semiconductor (SMH):
The largest semiconductor ETF, SMH has more than $725 million in assets. Like most other HOLDRS products, SMH concentrates a large portion of its portfolio in a few companies: about 23% of the fund is allocated to Intel and 22% to Texas Instruments.

iShares North American Technology-Semiconductors Index Fund (IGW):
This ETF tracks the S&P North American Technology-Semiconductors Index, a benchmark that measures the performance of producers of capital equipment and manufacturers of wafers or chips. IGW’s current price-to-earnings ratio of more than 37 reflects the strong rebound anticipated for component companies in 2010.

SPDR S&P Semiconductor ETF (XSD):
The cheapest of the four ETFs highlighted here, XSD has also delivered by far the best year-to-date returns. XSD is based on an equal-weighted index, accounting for the relatively small allocation to Intel and Texas Instruments relative to the other ETFs profiled herein.

PowerShares Dynamic Semiconductor Portfolio (PSI):
This ETF is based on an “Intellidex” that seeks to identify companies in the semiconductor industry poised to outperform the broad market.