Checking In With Chips

Published on Monday, 23 January 2012 16:05 Written by Todd Shriber

New York, January 23^rd  (TradersHuddle.com) – For as many large companies as there are operating in the semiconductor space, there really aren’t that many ETFs offering exposure to this critical segment of the technology universe. For investors looking to play semiconductor makers without the burden of stock picking, a new spin on an old ETF might just be what the doctor ordered. We’re referring to the Market Vectors Semiconductor ETF (NYSE: SMH), which was part of the suite of six HOLDRs funds recently acquired by Market Vectors’ parent company, Van Eck Global.

One of the knocks on the old version of SMH was that its weight was too heavily concentrated between just two stocks – Intel (NASDAQ: INTC) and Texas Instruments (NYSE: TXN). The new version of SMH is only marginally better on that front as Intel and Taiwan Semiconductor (NYSE: TSM) represent approximately 32% of the ETF’s weight.

That’s the bad news. What the Market Vectors Semiconductor ETF lacks in diversity, the ETF has made up for in performance. The new incarnation of SMH debuted in December just under $29 per share. Today, it’s flirting with $34 and its chart shows that run has taken place on decent volume with only noticeable hiccup along the way.

SMH, which features a beta of just over 1.1, has gained over 10% since the start of the new year and Intel’s recently delivered bullish earnings report certainly helped matters. The ETF is now trading just pennies of a new 52-week high and is more than 7% above both its 50- and 200-day moving averages.

While much SMH’s weight is tied up in Intel and Taiwan Semiconductor, the ETF is home to 26 stocks overall, including many familiar names. Texas Instruments, Broadcom (NASDAQ: BRCM), Applied Materials (NASDAQ: AMAT), Altera (NASDAQ: ALTR) and Xilinx (NASDAQ: XLNX) are also included among SMH’s top-10 holdings. The ETF is heavily tilted toward its top-10 holdings as that group represents over 70% of the fund’s weight.

Conservative investors can warm to SMH because the ETF features no exposure to small-caps and because the U.S. accounts for almost three-quarters of the fund’s country weight. Other countries receiving smaller allocations in SMH include Taiwain, the Netherlands, the U.K. and Singapore.

With almost $366 million in assets under management, SMH has an expense ratio of 0.35%, which is fair as far as sector funds go. There are definitely sector ETFs with lower fees and plenty of others that charge more than 0.35%.

All those nice statistics aside, at the end of the day, it’s all about performance and that’s what underscores SMH’s utility as a semiconductor sector play. In the past month, the ETF has performed inline with Texas Instruments while sharply outperforming Intel and Taiwan Semiconductor.