The VanEck Semiconductor ETF (NASDAQ:SMH) is the most popular way to bet on chips. SMH is the default semiconductor ETF for most brokerage accounts, prized for its concentrated exposure to the largest AI names and its long track record of leading the sector higher. That reputation is earned. But in 2026, a quieter chip fund with a flatter weighting has beaten SMH by roughly 20 percentage points year to date, and the reason has less to do with stock picking than with how the two indexes are built.
The alternative is the iShares Semiconductor ETF (NASDAQ:SOXX), which tracks the NYSE Semiconductor Index using a capped, more evenly distributed methodology. It holds many of the same names as SMH, but the weights sit closer together across the top of the book. That subtle structural difference has produced a large performance gap this year.
Why Investors Hold SMH
Concentration in the largest chip companies is what SMH delivers as a market-cap-weighted fund. According to the most recent fact sheet dated May 27, 2026, the top five positions are AMD at 10.33%, Broadcom at 9.57%, Micron at 9.39%, Taiwan Semiconductor at 8.75%, and NVIDIA at 8.4%. The top 10 combined represent roughly 71% of total assets. Investors buy SMH precisely because it puts real weight behind the industry leaders and does not dilute exposure with second-tier names.
The expense ratio is 0.35%, competitive for a sector fund. Liquidity is deep. For someone seeking a single ticker that captures the mega-cap semiconductor complex, SMH is a defensible core holding.
Where the Concentration Bites
The issue is the fund’s top-heavy construction, which leaves it vulnerable when the largest positions lag the rest of the group. In 2026, that is exactly what happened. AMD, Broadcom, and Micron each carry weights above 9% in SMH, so any underperformance among that trio pulls the whole fund down. Meanwhile, mid-weighted names like Lam Research at 5.62% and Applied Materials at 5.53% contribute less to returns than their strong individual performances would suggest.
How SOXX Won by 20 Points
Through August 4, SOXX has returned 80.24% year to date, compared with 59.86% for SMH over the same stretch. That is a gap of roughly 20.4 percentage points in just seven months, on funds that hold largely overlapping portfolios. The mechanism comes down to the weighting scheme. SOXX keeps its top holdings closely grouped, with AMD at 8.57%, NVIDIA at 8.42%, and Micron at 8.21%, and caps single-stock weights to prevent any one name from dominating performance.
Over one year, SOXX has returned 126.59% versus 99% for SMH. Over five years, SMH’s cap-weighting has actually helped, delivering 339.48% against SOXX’s 261.59%. The pattern is consistent: when a few giants lead, SMH wins. When leadership broadens across the sector, SOXX wins. 2026 has been a broadening year.
The Fee Alternative: SOXQ
For cost-focused investors, the Invesco PHLX Semiconductor ETF (NASDAQ:SOXQ) tracks the PHLX Semiconductor Sector Index at an expense ratio of 0.10%, well below SOXX at 0.33% and SMH at 0.35%. SOXQ has returned 72.20% year-to-date, splitting the difference between the two larger funds. Its top holdings include NVIDIA at 13.30%, Micron at 7.76%, and AMD at 4.20%, so it does carry more NVIDIA exposure than either SMH or SOXX, a meaningfully higher single-name concentration.
The Tradeoffs
Switching from SMH to SOXX shifts the profile toward equipment makers and mid-cap chip names and away from the largest mega-caps. That has helped in 2026 and hurt over the last five years. Holders of SMH in a taxable account may want to weigh the capital gains impact before any sale. One path is to redirect new contributions into SOXX or SOXQ while leaving the SMH position in place; another is to swap inside a tax-advantaged account, where the change carries no tax cost.
What to Do With This
For years, the cap-weighted structure of SMH has served investors well, and it will work again if a single name dominates the sector. But 2026 has shown the cost of that concentration when leadership broadens across the group. The same sector thesis is available through SOXX with a flatter book and a 20-point head start this year, while SOXQ offers that same thesis at roughly a third of the fee. Which one fits best depends on whether the reader is betting on the giants or on the broader group.
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