The Smartest Semiconductor ETF to Buy with $1,000 Right Now

Do you wish you had invested in semiconductor company Nvidia five years ago? Of course. It recently saw a phenomenal increase of 1,775% during this period, an average annual growth of 80%! That’s enough to turn a $10,000 investment into nearly $190,000 in just five years. However, it is too late to make an investment in 2019.

You could of course, invest in Nvidia now. Its shares are still on the market – although some will consider them overvalued at this point. Its price-to-sales ratio, for example, was recently 35, nearly double its five-year average of 19.

Still, some view Nvidia’s stock as attractive, in part because of its artificial intelligence (AI) technology. So, based on your research and findings, you might invest in it now. Or you can split your planned investment and purchase in installments over time.

What to do with Nvidia? Consider an Impressive Semiconductor ETF

Here’s another smart move to consider: Invest in a semiconductor exchange-traded fund (ETF) instead. And here is a good candidate for your portfolio: the iShares Semiconductor ETF (NASDAQ:SOXX). I consider semiconductors to be one of the most promising sectors because they are essential to many dynamic and growing fields, such as artificial intelligence, cloud computing, virtual reality, robotics and telecommunications. Therefore, I am bullish on semiconductor-focused ETFs, particularly the iShares Semiconductor ETF.

The iShares Semiconductor ETF in a nutshell

Remember, ETFs are a lot like mutual funds, but they trade like stocks. The iShares Semiconductor ETF obviously focuses on semiconductor stocks and recently held 35 of them. Perhaps fittingly, Nvidia is its top holding. Here is his recent top 10:

Holding

ETF weight

Data source: iShares.com.

Other well-known semiconductor names, such as Semiconductor manufacturing in Taiwanwith a weighting of 4%, are also part of the 35.

So, by purchasing a few shares of the iShares Semiconductor ETF, you will instantly be invested in 35 semiconductor companies, including many of the most well-known and respected. And about 9% of your investment will also be in Nvidia.

This is a great way to invest in a certain class of stocks without having to study them all and make critical decisions about which ones to buy and when to buy and/or sell them. You can, for example, be very bullish on semiconductors, given that they are in almost everything, including cars and refrigerators, these days. And if you don’t want to become a semiconductor expert, you can simply invest in a number of semiconductor companies.

The story continues

Even if you are familiar with the semiconductor industry, perhaps knowing that there is a push to increase manufacturing here in the United States, you may not know which industry players will ultimately dominate in the future. Investing in an ETF like the iShares Semiconductor ETF can help you hedge your bets.

It’s also convenient if you only have a relatively small amount to invest, as it provides instant diversification without you having to invest in many individual stocks. (Note, however, that if you have diversified your money across many companies but they are all in the same industry, you are still underdiversified.)

The iShares Semiconductor ETF: Reasonable Fees, Excellent Performance

Before investing in an ETF (or mutual fund, for that matter), you should check the fees it charges. This ETF charges an expense ratio (annual fee) of 0.35%, which is quite reasonable. High fees, like those that approach or exceed 1%, can really eat into your returns.

Speaking of returns, here is the performance of the iShares Semiconductor ETF over the following periods, as of early May:

How the iShares Semiconductor ETF has performed historically

Average annual earnings

Data source: Morningstar.com.

Not too bad, right? Please remember that these past results do not guarantee any future results. But they demonstrate that this ETF could see meteoric growth in the years to come – if semiconductors continue to be vital to our lives.

So consider the iShares Semiconductor ETF if you’re bullish on semiconductors. (And note that there are other semiconductor ETFs you might also want to consider.) And if you have high expectations for any other group of companies, like perhaps alternative energy specialists, companies cloud computing, healthcare companies or banks, be aware that there are also sector ETFs that focus on these.

Should you invest $1,000 in iShares Trust – iShares Semiconductor ETF right now?

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Selena Maranjian holds positions in Micron Technology, Nvidia, Qualcomm and iShares Trust-iShares Semiconductor ETF. The Motley Fool holds positions in and recommends Advanced Micro Devices, Nvidia, Qualcomm, Taiwan Semiconductor Manufacturing, Texas Instruments, and iShares Trust-iShares Semiconductor ETF. The Motley Fool recommends Broadcom, Intel, and NXP Semiconductors and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Mad Motley has a disclosure policy.

The Smartest Semiconductor ETF to Buy with $1,000 Right Now was originally published by The Motley Fool

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