The Semiconductor Fund Beating SMH by 20 Points With Less Nvidia
A chip-focused ETF holding less Nvidia exposure is outperforming the popular SMH fund by 20 percentage points, challenging conventional wisdom.
A lesser-known semiconductor exchange-traded fund is delivering a stunning outperformance over the widely followed VanEck Semiconductor ETF, known by its ticker SMH, beating it by roughly 20 percentage points — and it's doing so while carrying a lighter position in Nvidia, the stock that has dominated chip-sector narratives for the past two years.
The development is drawing attention from investors who have long treated SMH as the default vehicle for semiconductor exposure. SMH's heavy weighting in Nvidia made it a star performer during the AI-driven rally, but that same concentration appears to be creating drag as the market's appetite for the most crowded trades shows signs of rotation.
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The outperforming fund's relatively reduced Nvidia allocation means it benefits more from gains in other parts of the semiconductor supply chain — areas like chip equipment makers, memory producers, and specialty analog chipmakers that have quietly staged their own recoveries. This diversification within the sector is proving to be a meaningful advantage in the current market environment, where single-stock concentration risk has become a more pressing concern for portfolio managers.
The comparison raises a broader strategic question for retail and institutional investors alike: whether benchmark-hugging semiconductor funds with top-heavy mega-cap weightings still offer the best risk-adjusted path into the chip sector, or whether more evenly distributed alternatives deserve a fresh look. As AI infrastructure spending continues to ripple across the entire semiconductor ecosystem rather than concentrating solely in GPU makers, the case for broader exposure is gaining traction.
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